<PAGE>
As filed with the Securities and Exchange Commission on June 1, 2000
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. 49
[X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
Amendment No. 50
[X]
The Galaxy Fund
(Exact Name of Registrant as Specified in Charter)
4400 Computer Drive
Westborough, Massachusetts 01581-5108
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(877) 289-4252
W. Bruce McConnel, III
DRINKER BIDDLE & REATH LLP
One Logan Square
18th and Cherry Streets
Philadelphia, Pennsylvania 19103
(Name and Address of Agent for Service)
Copy to:
Jylanne Dunne, Vice President
PFPC Inc.
4400 Computer Drive
Westborough, Massachusetts 01581-5108
It is proposed that this filing will become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on July 1, 2000 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>
The Galaxy Fund
Prospectus
June 1, 2000
Galaxy Intermediate Tax-Exempt Bond Fund
Galaxy Connecticut Intermediate Municipal Bond Fund
Galaxy Massachusetts Intermediate Municipal Bond Fund
Galaxy Growth Fund II
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>
Risk/return summary ................................................1
Introduction .......................................................1
Galaxy Intermediate Tax-Exempt Bond Fund ...........................2
Galaxy Connecticut Intermediate Municipal Bond Fund ................6
Galaxy Massachusetts Intermediate Municipal Bond Fund ..............11
Galaxy Growth Fund II ..............................................15
Additional information about risk ..................................19
Investor guidelines ................................................20
Fund management ....................................................21
How to invest in the Funds .........................................22
How sales charges work .............................................22
Buying, selling and exchanging shares ..............................24
How to buy shares ...........................................25
How to sell shares ..........................................26
How to exchange shares ......................................27
Other transaction policies ..................................27
Dividends, distributions and taxes .................................28
Galaxy investor programs ...........................................30
Retirement plans ...................................................30
Other programs .....................................................30
How to reach Galaxy ................................................32
Financial highlights ...............................................33
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the Galaxy Intermediate Tax-Exempt Bond Fund, Galaxy
Connecticut Intermediate Municipal Bond Fund, Galaxy Massachusetts Intermediate
Municipal Bond Fund and Galaxy Growth Fund II. Each Fund commenced operations as
a separate portfolio (the "Predecessor Fund") of the Boston 1784 Funds. On
______, 2000, each Predecessor Fund was reorganized as a new portfolio of
Galaxy.
On the following pages, you'll find important information about each Fund,
including:
- the Fund's investment objective (sometimes called the Fund's goal) and
the main investment strategies used by the Fund's investment adviser in
trying to achieve that objective
- the main risks associated with an investment in the Fund
- the past performance of the Fund measured on both a year-by-year and
long-term basis
- the fees and expenses that you will pay as an investor in the Fund.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as the
ADVISER, is the investment adviser for all of these Funds. The Adviser, an
indirect wholly-owned subsidiary of FleetBoston Financial Corporation, was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$68 billion in assets.
[Sidenote:]
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 ANY OF THE FUNDS.
GALAXY RETAIL A & B SHARES 1
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income, exempt from federal
income tax, consistent with preservation of capital.
[Sidenote:]
PRESERVATION OF CAPITAL
Preservation of capital means protecting the amount of money you invest in a
Fund. If a Fund seeks to preserve capital, it will try to maintain a relatively
stable share price so your investment is protected.
[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 FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in a diversified portfolio of 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 circumstances, at least 80% of the Fund's net
assets are invested in municipal securities or in mutual funds that invest in
municipal securities. The Fund may also invest up to 20% of its net assets in
debt securities that pay interest that is not exempt from federal tax, such as
U.S. Government obligations, corporate bonds, money market instruments,
including commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. The
Adviser expects, however, that most of the securities purchased by the Fund will
have one of the top three ratings assigned by S&P or 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 investment
grade. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by either S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five 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.
2 GALAXY RETAIL A & B SHARES
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
[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.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION SECURITIES are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION SECURITIES are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
THE MAIN RISKS OF INVESTING IN THE FUND
All mutual funds are affected by changes in the economy and swings in investment
markets.
In addition, the Fund carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including
municipal securities, tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall.
When rates are falling, the prices of debt securities tend to rise.
Generally, the longer the time until maturity, the more sensitive the price
of a debt security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause
certain municipal securities held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- HEDGING - The Fund may invest in derivatives, such as futures and
options on futures, to hedge against market risk. There is 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. These instruments
may be leveraged so that small changes may produce disproportionate losses
to the Fund.
- 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 RETAIL A & B SHARES 3
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
[Sidenote:]
DERIVATIVES
A derivative is an investment whose value is based on or derived from the
performance of other securities or interest or currency exchange rates or
indices. Derivatives are considered to carry a higher degree of risk than other
types of securities.
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On ________, 2000 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 Trust Shares and BKB Shares of the Fund. The returns shown below are
for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year. Shares of the Predecessor Fund were sold without any sales
charges. If the returns of the Predecessor Fund were restated to reflect the
sales charges that investors pay when buying Retail A Shares of the Fund, the
returns would be lower.
[Sidenote:]
Best quarter: 5.39% for the quarter ending March 31, 1995
Worst quarter: -4.20% for the quarter ending March 31, 1994
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-3.02% 14.31% 4.20% 9.10% 6.41% -2.95%
-------------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.82%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index. The
returns for the Fund have been restated to include the effect of the maximum
3.75% front-end sales charge payable on purchases of Retail A Shares.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1 year 5 years Since inception
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -6.62% 5.25% 4.49% (6/14/93)
---------------------------------------------------------------------------------------
Lehman Brothers
4 GALAXY RETAIL A & B SHARES
<PAGE>
7-Year Municipal Bond Index -0.14% 6.36% 5.28% (since 5/31/93)
----------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
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 paid directly from your investment)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Maximum sales charge Maximum deferred
(load) on purchases sales charge (load)
shown as a % of the shown as a % of
offering price the offering price
or sale price,
whichever is less
-------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
-------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Management Distribution Other expenses Total Fund
fees and service operating expenses
(12b-1) fees
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.30% 1.05%(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 0.63%. Total Fund operating expenses after this waiver
are expected to be 0.93% for Retail A 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
- 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 $478 $697 $933 $1,609
--------------------------------------------------------------------------------
</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 RETAIL A & B SHARES 5
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income exempt from both federal
and Connecticut personal income tax, with a secondary goal of preserving
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Connecticut municipal securities. Connecticut municipal securities 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 net assets in taxable debt securities, such as U.S. Government
obligations, corporate bonds, money market instruments, including commercial
paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. The
Adviser expects, however, that most of the securities purchased by the Fund will
have one of the top three ratings assigned by S&P or 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 investment
grade. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five and ten years.
6 GALAXY RETAIL A & B SHARES
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
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 carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including
municipal securities, tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall.
When rates are falling, the prices of debt securities tend to rise.
Generally, the longer the time until maturity, the more sensitive the price
of a debt security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause
certain municipal securities held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means
that it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would affect
a diversified fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in 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.
GALAXY RETAIL A & B SHARES 7
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
- HEDGING - The Fund may invest in derivatives, such as futures and
options on futures, to hedge against market risk. There is 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. These instruments
may be leveraged so that small changes may produce disproportionate losses
to the Fund.
- 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 RETAIL A & B SHARES
<PAGE>
Galaxy Connecticut Intermediate Municipal Bond Fund
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on August 1, 1994 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _______, 2000 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 Trust Shares and BKB Shares of the Fund. The returns shown below are
for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year. Shares of the Predecessor Fund were sold without any sales
charges. If the returns of the Predecessor Fund were restated to reflect the
sales charges that investors pay when buying Retail A Shares of the Fund, the
returns would be lower.
[Sidenote:]
Best quarter: 5.91% for the quarter ending March 31, 1995
Worst quarter: -2.28% for the quarter ending June 30, 1999
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14.66% 3.63% 8.53% 6.67% -2.81%
-------------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.66%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index. The
returns for the Fund have been restated to include the effect of the maximum
3.75% front-end sales charge payable on purchases of Retail A Shares.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1 year 5 years Since inception
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -6.45% 5.17% 4.58% (8/1/94)
-------------------------------------------------------------------------------
Lehman Brothers
7-Year Municipal
Bond Index
-0.14% 6.36% 5.57% (since 7/31/94)
-------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
GALAXY RETAIL A & B SHARES 9
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE 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 paid directly from your investment)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Maximum sales charge (load) Maximum deferred sales
on purchases shown as a % of charge (load) shown as a %
the offering price of the offering price or
sale price, whichever is
less
-------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
-------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Management Distribution and Other Total Fund operating
fees service (12b-1) fees expenses expenses
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.32% 1.07%(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 0.63%. Total Fund operating expenses after this waiver
are expected to be 0.95% for Retail A 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
- 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 $480 $703 $943 $1,632
-------------------------------------------------------------------------------
</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 RETAIL A & B SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income, exempt from both
federal and Massachusetts personal income tax, consistent with preservation of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Massachusetts municipal securities. Massachusetts municipal securities
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 net assets in taxable obligations, such as U.S.
Government obligations, corporate bonds, money market instruments, including
commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. The
Adviser expects, however, that most of the securities purchased by the Fund will
have one of the top three ratings assigned by S&P or 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 investment
grade. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances the Fund's average weighted maturity will be
between five 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.
GALAXY RETAIL A & B SHARES 11
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
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 carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including
municipal securities, tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall.
When rates are falling, the prices of debt securities tend to rise.
Generally, the longer the time until maturity, the more sensitive the price
of a debt security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal
securities, also depends on the ability of issuers to make principal and
interest payments. If an issuer can't meet its payment obligations or if
its credit rating is lowered, the value of its debt securities will fall.
Debt securities which have the lowest of the top four ratings assigned by
S&P or Moody's have speculative characteristics. Changes in the economy are
more likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause
certain municipal securities held by the Fund to be paid off much sooner or
later than expected, which could adversely affect the Fund's value. In the
event that a security is paid off sooner than expected because of a decline
in interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means
that it can invest a large percentage of its assets in a small number of
issuers. As a result, a change in the value of any one investment held by
the Fund may affect the overall value of the Fund more than it would affect
a diversified fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in
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.
- HEDGING - The Fund may invest in derivatives, such as futures and
options on futures, to hedge against market risk. There is 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. These instruments
may be leveraged so that small changes may produce disproportionate losses
to the Fund.
- 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.
12 GALAXY RETAIL A & B SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _______, 2000 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 Trust Shares and BKB Shares of the Fund. The returns shown below are
for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year. Shares of the Predecessor Fund were sold without any sales
charges. If the returns of the Predecessor Fund were restated to reflect the
sales charges that investors pay when buying Retail A Shares of the Fund, the
returns would be lower.
[Sidenote:]
Best quarter: 5.45% for the quarter ending March 31, 1995
Worst quarter: -5.15% for the quarter ending March 31, 1994
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-5.45% 13.73% 3.32% 8.89% 5.91% -2.16%
-------------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.59%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index. The
returns for the Fund have been restated to include the effect of the maximum
3.75% front-end sales charge payable on purchases of Retail A Shares.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1 year 5 years Since inception
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -5.83% 4.99% 3.97% (6/14/93)
-------------------------------------------------------------------------------
Lehman Brothers -0.14% 6.36% 5.28% (since 5/31/93)
7-Year Municipal
Bond Index
-------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
GALAXY RETAIL A & B SHARES 13
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE 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 paid directly from your investment)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Maximum sales charge (load) Maximum deferred sales
on purchases shown as a % of charge (load) shown as a %
the offering price of the offering price or
sale price, whichever is less
-------------------------------------------------------------------------------
<S> <C> <C>
Retail A Shares 3.75%(1) None(2)
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
-------------------------------------------------------------------------------
Management Distribution and Other Total Fund operating
fees service (12b-1) fees expenses expenses
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75%(3) None 0.32% 1.07%(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 0.63%. Total Fund operating expenses after this waiver
are expected to be 0.95% for Retail A 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
- 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 $480 $703 $943 $1,632
-------------------------------------------------------------------------------
</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.
14 GALAXY RETAIL A & B SHARES
<PAGE>
GALAXY GROWTH FUND II
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with capital appreciation. Dividend income,
if any, is incidental to capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in common stock (including depositary receipts) of
U.S. and foreign companies which the Adviser believes have above-average growth
potential. The Fund normally invests 80% to 90% or more of its total assets in
these securities, although the Fund may invest up to 35% of its total assets in
other securities, such as convertible and non-convertible debt securities,
preferred stock, warrants and money market instruments.
The Fund principally invests in U.S. companies with market capitalizations of at
least $250 million, although the Fund also may invest in companies with smaller
capitalizations. The Fund may invest up to 25% of its total assets in the
securities of foreign companies, including companies in developing countries.
While some of the Fund's investments may pay dividends, current income is not a
consideration when selecting investments.
In selecting securities for the Fund, the Adviser uses a "bottom-up" approach.
It looks for companies that it believes are in dynamic high-growth sectors of
the world economy and that are thought to have dominant or strong competitive
positions within their sectors. The Adviser also looks for companies thought to
have quality management and that are expected to have strong earnings growth
potential.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund.
The Fund will sell a security if there is an adverse change in the projected
earnings growth of the company issuing the security. A security will also be
sold when, as a result of changes in the economy or the performance of the
security or other circumstances, the Adviser believes that holding the security
is no longer consistent with the Fund's investment objective.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
[Sidenote:]
MARKET CAPITALIZATION
A company's market capitalization is the price of a share of its stock,
multiplied by the number of shares held by investors.
THE MAIN RISKS OF INVESTING IN THE FUND
Changes in the U.S. or foreign economies can cause the value of stocks and other
investments held by the Fund to fall. Stock prices may decline over short or
extended periods. Stock markets tend to move in cycles, with periods of rising
prices and periods of falling prices.
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 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.
- 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.
GALAXY RETAIL A & B SHARES 15
<PAGE>
GALAXY GROWTH FUND II
- 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.
- HEDGING - The Fund may engage in foreign currency transactions to
hedge against 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. These
instruments may be leveraged so that small changes may produce
disproportionate losses to the Fund.
- 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.
16 GALAXY RETAIL A & B SHARES
<PAGE>
Galaxy Growth Fund II
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on March 28, 1996 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _______, 2000, 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 Trust Shares and BKB Shares of the Fund. The returns shown below are
for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year. Shares of the Predecessor Fund were sold without any sales
charges. If the returns of the Predecessor Fund were restated to reflect the
sales charges that investors pay when buying Retail A Shares of the Fund, the
returns would be lower.
[Sidenote:]
Best quarter: 53.66% for the quarter ending December 31, 1999
Worst quarter: -22.74% for the quarter ending September 30, 1998
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1997 1998 1999
-------------------------------------------------------------------------------
<S> <C> <C>
13.92% 1.36% 70.42%
-------------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
15.22%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index. The
returns for the Fund have been restated to include the effect of the maximum
3.75% front-end sales charge applicable to Retail A Shares. There is no
performance information for Retail B Shares because the class has not yet
commenced operations.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1 year Since inception
-------------------------------------------------------------------------------
<S> <C> <C>
Predecessor Fund(1) 66.03% 23.69% (3/28/96)
Predecessor Fund(2) 65.42% 24.52%
-------------------------------------------------------------------------------
Russell 2000 Index 21.26% 13.41% (since 3/31/96)
-------------------------------------------------------------------------------
</TABLE>
(1) The performance of the Predecessor Fund has been restated to include the
effect of the maximum 3.75% front-end sales charge payable on purchases of
Retail A Shares.
(2) The performance of the Predecessor Fund has been restated to include the
effect of the applicable contingent deferred sales charge payable on
redemptions of Retail B Shares within six years of the date of purchase.
Retail B Shares are also subject to distribution and service (12b-1) fees at
an annual rate of 0.95% of the Fund's Retail B Share assets. Had the
performance of the Predecessor Fund been restated to reflect these
distribution and service (12b-1) fees, average annual total returns for the
Predecessor Fund would have been lower.
[Sidenote:]
The Russell 2000 Index is an unmanaged index which tracks the performance of the
2000 smallest of the 3000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
GALAXY RETAIL A & B SHARES 17
<PAGE>
GALAXY GROWTH FUND II
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 paid directly from your investment)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Maximum sales charge (load) Maximum deferred sales
on purchases shown as a % of charge (load) shown as a %
the offering price of the offering 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 (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Management Distribution and Other Total Fund operating
fees service (12b-1) fees expenses expenses
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail A Shares 0.75% None 0.49% 1.24%
-------------------------------------------------------------------------------
Retail B Shares 0.75% 0.95% 0.19% 1.89%
-------------------------------------------------------------------------------
</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 $497 $754 $1,030 $1,819
-------------------------------------------------------------------------------
Retail B Shares $692 $894 $1,221 $1,887
-------------------------------------------------------------------------------
If you hold Retail B Shares, you would pay the following expenses if you didn't
sell your shares:
-------------------------------------------------------------------------------
Retail B Shares $192 $594 $1,021 $1,887
-------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio managers are Theodore E. Ober and Eugene D. Takach. They
are primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Ober, who has over 11 years of experience in investment
management and research analysis, has been a Research Analyst, Fund Manager and
Senior Fund Manager with the Adviser and its affiliated organizations since
1987. Mr. Takach, who has over 30 years of experience in investment management,
research analysis and securities trading, has been a portfolio manager with the
Adviser and its affiliated organizations since 1971. Mr. Ober and Mr. Takach
have co-managed the Predecessor Fund since it began operations.
18 GALAXY RETAIL A & B SHARES
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the 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) and taxable investments, such as money market
instruments and debt securities issued or guaranteed by the U.S. Government or
its agencies. These strategies could prevent a Fund from achieving its
investment objective and could reduce the Fund's return and affect its
performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment strategies
of the Funds - and the risks involved - are described in detail in the Statement
of Additional Information (SAI) which is referred to on the back cover of this
prospectus.
YEAR 2000 RISKS
Over the past several years, the Adviser and the Funds' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. The Adviser
and the Funds' other major service providers are continuing to monitor the Year
2000 or Y2K problem and there can be no assurances that there will be no adverse
impact to the Funds as a result of future computer-related Y2K difficulties.
GALAXY RETAIL A & B SHARES 19
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the 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.
<TABLE>
<CAPTION>
Galaxy Fund May be best suited for investors who...
--------------------------------------------------------------------------------
<S> <C>
Galaxy Intermediate Tax-Exempt
Bond Fund - are seeking current income that is
exempt from federal income tax
- are seeking a higher yield than is
available from shorter-term tax-exempt
securities or money market funds
--------------------------------------------------------------------------------
Galaxy Connecticut Intermediate
Municipal Bond Fund - reside in Connecticut and are seeking
current income that is exempt from
federal income tax and Connecticut
personal income tax
- are seeking a higher yield than is
available from shorter-term tax-exempt
securities or money market funds
--------------------------------------------------------------------------------
Galaxy Massachusetts Intermediate
Municipal Bond Fund - reside in Massachusetts and are
seeking current income that is exempt
from federal income tax and
Massachusetts personal income tax
- are seeking a higher yield than is
available from shorter-term tax-exempt
securities or money market funds
--------------------------------------------------------------------------------
Galaxy Growth Fund II - are seeking long-term growth
- are able to tolerate the additional
risks of investing in smaller
companies
- are not seeking income
--------------------------------------------------------------------------------
</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.
20 GALAXY RETAIL A & B SHARES
<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. Prior to the
reorganization, BankBoston N.A. ("BankBoston") served as the investment adviser
to each of the Predecessor Funds. BankBoston is an indirect wholly-owned
subsidiary of FleetBoston Financial Corporation and an affiliate of the Adviser.
The management fees paid to BankBoston by each Predecessor Fund during the
fiscal year ended May 31, 1999 are set forth below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Fund Management fee as a % of average net
assets
--------------------------------------------------------------------------------
<S> <C>
Intermediate Tax-Exempt Bond 0.68%
--------------------------------------------------------------------------------
Connecticut Intermediate Municipal Bond 0.67%
--------------------------------------------------------------------------------
Massachusetts Intermediate Municipal 0.67%
Bond
--------------------------------------------------------------------------------
Growth II 0.74%
--------------------------------------------------------------------------------
</TABLE>
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 they believe that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
GALAXY RETAIL A & B SHARES 21
<PAGE>
HOW TO INVEST IN THE FUNDS
All of the Funds offer Retail A Shares. The Growth Fund II 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 Growth Fund II, 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.
[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.
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
-------------------------------------------------------------------------------
Amount of your investment As a % of the offering As a % of your
price 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. However, Galaxy will
waive the 1% CDSC if you sell shares during this one-year period provided
that the amount of shares that you sell doesn't exceed 12% of your account's
value annually. If you reinvest the proceeds of this sale within one year,
the waiver of the CDSC won't apply to any sale of shares purchased with such
reinvested proceeds.
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 were a Galaxy shareholder before December 1, 1995.
- You buy shares for a 401(k) or SIMPLE IRA retirement account (applicable
only for the Growth Fund II).
- You buy shares for any retirement account provided that you held Retail A
Shares in a retirement account prior to January 1, 1999 (applicable only
for the Growth Fund II).
- You buy shares for any retirement account and your total cumulative Retail
A Share retirement account balance was $30,000 or more between January 1,
1999 and June 30, 1999 (applicable only for the Growth Fund II).
- 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).
22 GALAXY RETAIL A & B SHARES
<PAGE>
- 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).
- 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.
- You were a shareholder of the Boston 1784 Funds on the date when the Boston
1784 Funds were reorganized into Galaxy.
[Sidenote:]
SALES CHARGE WAIVERS
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).
RETAIL B SHARES
If you buy Retail B Shares of the Growth Fund II, 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 your shares You'll pay a 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 Growth Fund II 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 0.95% in distribution and
shareholder service (12b-1) fees during the current fiscal year. Galaxy has
adopted a plan under Rule 12b-1 that allows the Growth Fund II 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 Growth Fund II, 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.
GALAXY RETAIL A & B SHARES 23
<PAGE>
CHOOSING BETWEEN RETAIL A SHARES AND RETAIL B SHARES
Retail B Shares are subject to higher fees than Retail A Shares. For this
reason, Retail A Shares can be expected to pay higher dividends than Retail B
Shares. However, because Retail A Shares are subject to an initial sales charge
which is deducted at the time you purchase Retail A Shares (unless you qualify
for a sales load waiver), you will have less of your purchase price invested in
a particular Fund if you purchase Retail A Shares than if you purchase Retail B
Shares of the Fund.
In deciding whether to buy Retail A Shares or Retail B Shares of the Growth Fund
II, 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 in the case of Retail B Shares of the Growth
Fund II. 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
NAV 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:]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
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. 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 RETAIL A & B SHARES
<PAGE>
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.
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. Galaxy's administrator will hold in escrow Retail A
GALAXY RETAIL A & B SHARES 25
<PAGE>
Shares equal to 5% of the amount you indicate in the Letter of Intent for
payment of a higher sales charge if you don't purchase the full amount
indicated in the Letter of Intent. See the SAI for more information on this
escrow feature.
- 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:]
DISCOUNT PLANS
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).
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 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.
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.
26 GALAXY RETAIL A & B SHARES
<PAGE>
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 the Growth Fund II 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 RETAIL A & B SHARES 27
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund, except the Growth Fund II, generally declares dividends from net
investment income daily and pays them monthly. The Growth Fund II generally pays
dividends from net investment income on a semi-annual basis. It is expected that
the annual distributions of the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond and Massachusetts Intermediate Municipal Bond Funds
will be mainly income dividends. It is expected that the annual distributions of
the Growth Fund II will normally - but not always - consist primarily of capital
gains rather than ordinary income. Each of the Funds normally pays any realized
capital gains at least once a year. Dividends and distributions are paid in cash
unless you indicate in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
GROWTH FUND II
The Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of the Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions
(including distributions attributable to short-term capital gains of a Fund)
will generally be taxable to you as ordinary income. You will be subject to
income tax on these distributions regardless of whether they are paid in cash or
reinvested in additional shares. Taxable dividends paid to you in January may be
taxable as if they had been paid the previous December. You will be notified
annually of the tax status of distributions to you.
Dividends paid by the Growth Fund II to its corporate shareholders and that are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements and
debt financing limitations.
INTERMEDIATE TAX-EXEMPT BOND FUND, CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
AND MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
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.
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. If you receive an exempt-interest dividend with respect to any
share and the share is held by you for six months or less, any loss on the
sale or exchange of the share will be disallowed to the extent of such
dividend amount.
You should note that a portion of the exempt-interest dividends paid by 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.
28 GALAXY RETAIL A & B SHARES
<PAGE>
ALL FUNDS
In the case of any Fund other than Money Market Funds 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.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months except that any loss realized on
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends that were received on the shares.
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.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of a Fund's distributions, if any, that are attributable to interest on
U.S. Government securities or on securities of the particular state or
localities within the state. 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, or from any capital gains, will be subject to the particular
state's taxes. However, with respect to the Connecticut Intermediate Municipal
Bond Fund, dividends, if any, derived from long-term capital gains on
Connecticut municipal securities of issuers in Connecticut will not be subject
to the Connecticut state income tax on individuals, trusts and estates if paid
on Fund shares held as capital assets.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
GALAXY RETAIL A & B SHARES 29
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
Retail A Shares and Retail B Shares of the Growth Fund II 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 per
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. 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.
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.
30 GALAXY RETAIL A & B SHARES
<PAGE>
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 Growth Fund II 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 RETAIL A & B SHARES 31
<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 web site at:
www.galaxyfunds.com
[Sidenote:]
HEARING IMPAIRED
Galaxy also offers a TDD service for the hearing impaired. Just call
1-800-696-6515, 24 hours a day, seven days a week.
32 GALAXY RETAIL A & B SHARES
<PAGE>
FINANCIAL HIGHLIGHTS
Each Fund began operations as a separate portfolio (the Predecessor Fund) of the
Boston 1784 Funds. On _______, 2000, each Predecessor Fund was reorganized as a
new portfolio of Galaxy. As discussed above in each Fund's risk/return summary,
prior to the reorganization, each Predecessor Fund offered and sold a single
class of shares. The financial highlights tables shown below will help you
understand the financial performance for each Predecessor Fund for the six-month
period ended November 30, 1999 and for the past five fiscal years (or the period
since a particular Predecessor Fund began operations). Certain information
reflects the financial performance of a single share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in each Predecessor Fund, assuming all dividends and distributions
were reinvested. The information for the semi-annual period ended November 30,
1999 is unaudited and such information, along with the Predecessor Fund's
financial statements, is included in the Predecessor Funds' Semi-Annual Reports
and incorporated by reference into the SAI. The information for the past five
fiscal years or periods has been audited by PricewaterhouseCoopers, LLP,
independent auditors, whose report, along with the Predecessor Funds' financial
statements, are included in the Predecessor Funds' Annual Reports and are
incorporated by reference into the SAI. The Annual and Semi-Annual Reports and
SAI are available free of charge upon request.
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30,
(unaudited) For the Year Ended May 31,
--------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period................................... $10.33 $10.52 $10.18 $9.99 $10.14 $9.90
------ ------ ------ ----- ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................ 0.22 0.45 0.48 0.50 0.51 0.48
Net realized and unrealized
gain (loss) on investments....... (0.46) (0.01) 0.44 0.19 (0.09) 0.24
------ ------ ---- ---- ------ ----
Total from investment operations........... (0.24) 0.44 0.92 0.69 0.42 0.72
------ ---- ---- ---- ---- ----
LESS DIVIDENDS:
Dividends from net investment income. (0.22) (0.45) (0.48) (0.50) (0.51) (0.48)
Dividends from net realized
capital gains..... .............. (0.11) (0.18) (0.10) -- (0.06) --
------ ------ ------ -------- ------ -----
Total dividends............................ (0.33) (0.63) (0.58) (0.50) (0.57) (0.48)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value. (0.57) (0.19) 0.34 0.19 (0.15) 0.24
------ ------ ---- ---- ----
Net asset value, end of period............. $ 9.76 $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14
-------- --------- --------- ---------- ---------- -----------
-------- --------- ---------- ---------- ---------- -----------
Total return............................... (2.33)%(1) 4.24% 9.24% 7.74% 4.31% 7.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).... $345,162 $356,995 $303,578 $250,526 $ 196,787 $176,345
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/ waiver.. 4.43%(2) 4.31% 4.62% 4.92% 4.90% 5.02%
Net investment income
excluding reimbursement/ waiver.. 4.12%(2) 4.00% 4.30% 4.55% 4.48% 4.56%
Operating expenses
including reimbursement/ waiver.. 0.80%(2) 0.80% 0.80% 0.80% 0.79% 0.80%
Operating expenses
excluding reimbursement/ waiver.. 1.11%(2) 1.11% 1.12% 1.17% 1.21% 1.26%
Portfolio turnover rate.................... 31.81% 68.58% 34.06% 33.24% 37.35% 74.74%
</TABLE>
-------------------------------
* The Fund commenced operations on June 14, 1993 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On _______, 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
(1) Not annualized.
(2) Annualized.
GALAXY RETAIL A & B SHARES 33
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30, For the period
(unaudited) For the Year Ended May 31, Ended May 31,
-------------- ------------------------------------------------ ------------
1999 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $10.67 $10.81 $10.38 $10.17 $10.27 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.23 0.48 0.50 0.51 0.53 0.45
Net realized and unrealized
gain (loss) on investments........... (0.43) (0.08) 0.45 0.21 (0.10) 0.27
------ ------ ---- ---- ------ ----
Total from investment operations............... (0.20) 0.40 0.95 0.72 0.43 0.72
------ ---- ---- ---- ---- ----
LESS DIVIDENDS:
Dividends from net investment income..... (0.23) (0.48) (0.50) (0.51) (0.53) (0.45)
Dividends from net
realized capital gains............... (0.05) (0.06) (0.02) -- -- --
------ ------ ------ ------ ------ ------
TOTAL DIVIDENDS................................ (0.28) (0.54) (0.52) (0.51) (0.53) (0.45)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net asset value..... (0.48) (0.14) 0.43 0.21 (0.10) 0.27
------ ------ ---- ---- ------ ----
Net asset value, end of period................. $ 10.19 $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return................................... (1.87)%(2) 3.72% 9.29% 7.26% 4.20% 7.45%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)......... $178,270 $187,725 $142,107 $103,104 $ 81,441 $ 61,369
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/ waiver....... 4.43%(3) 4.37% 4.66% 4.94% 5.02% 5.44%(3)
Net investment income
excluding reimbursement/ waiver....... 4.11%(3) 4.05% 4.32% 4.53% 4.48% 4.56%(3)
Operating expenses
including reimbursement/ waiver....... 0.80%(3) 0.80% 0.80% 0.76% 0.75% 0.52%(3)
Operating expenses
excluding reimbursement/ waiver....... 1.12%(3) 1.12% 1.14% 1.17% 1.29% 1.40%(3)
Portfolio turnover rate............. ..... 16.84% 19.10% 16.81% 4.28% 20.41% 35.56%
</TABLE>
----------------------------------
* The Fund commenced operations on August 1, 1994 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds. On _______,
2000, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold one
class of shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their shares for Trust Shares and BKB Shares of
the Fund.
(1) Period from commencement of operations.
(2) Not annualized.
(3) Annualized.
34 GALAXY RETAIL A & B SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30,
(unaudited) For the Year Ended May 31,
------------------- -----------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $10.39 $10.42 $10.01 $9.78 $9.90 $9.81
------ ------ ------ ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......... 0.23 0.45 0.47 0.47 0.48 0.47
Net realized and unrealized
gain (loss) on investments.... (0.42) (0.03) 0.41 0.23 (0.12) 0.09
------ ------ ---- ---- ------ ----
Total from investment operations................... (0.19) 0.42 0.88 0.70 0.36 0.56
------ ---- ---- ---- ---- ----
LESS DIVIDENDS:
Dividends from net investment income......... (0.23) (0.45) (0.47) (0.47) (0.48) (0.47)
Dividends from net realized capital gains.... -- -- -- -- -- --
------ ------ ------ -------- ------- -----
Total dividends.................................... (0.23) (0.45) (0.47) (0.47) (0.48) (0.47)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value........................................ (0.42) (0.03) 0.41 0.23 (0.12) 0.09
------ ------ ---- ---- ------ ----
Net asset value, end of period..................... $ 9.97 $ 10.39 $ 10.42 $ 10.01 $ 9.78 $ 9.90
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return........................ (1.88)%(1) 4.10% 8.91% 7.30% 3.64% 6.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)............ $252,068 $267,871 $206,137 $147,459 $ 106,619 $ 82,058
RATIOS TO AVERAGE NET ASSETS:
Net investment income
including reimbursement/ waiver.......... 4.45%(2) 4.32% 4.54% 4.74% 4.73% 4.93%
Net investment income
excluding reimbursement/ waiver.......... 4.13%(2) 4.00% 4.20% 4.35% 4.25% 4.38%
Operating expenses
including reimbursement/ waiver.......... 0.80%(2) 0.80% 0.80% 0.79% 0.80% 0.80%
Operating expenses
excluding reimbursement/ waiver.......... 1.12%(2) 1.12% 1.14% 1.18% 1.28% 1.35%
Portfolio turnover rate............................ 0.82% 9.32% 6.45% 9.47% 47.00% 34.59%
</TABLE>
-------------------------------
* The Fund commenced operations on June 14, 1993 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On ______, 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the
Predecessor Fund offered and sold one class of shares. In connection with the
reorganization, shareholders of the Predecessor Fund exchanged their shares for
Trust Shares and BKB Shares of the Fund.
(1) Not annualized.
(2) Annualized.
GALAXY RETAIL A & B SHARES 35
<PAGE>
GALAXY GROWTH FUND II*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six Month
Period Ended For the Period
November 30, Ended
(unaudited) For the Year Ended May 31
------------ ------------------------------------------------
1999 1999 1998 1997 1996(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $12.06 $12.93 $12.20 $11.27 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................................. (0.02) (0.08) (0.05) 0.02 0.02
Net realized and unrealized gain
(loss) on investments.............................. 5.26 (0.41) 1.59 0.96 1.25
---- ------ ---- ---- ----
Total from investment operations............................ 5.24 (0.49) 1.54 0.98 1.27
---- ------ ---- ---- ----
LESS DIVIDENDS:
Dividends from net investment income.................. -- -- -- (0.05) --
Dividends from net realized capital
gains.............................................. (1.20) (0.38) (0.81) -- --
------ ------ ------ -------- -----
Total dividends............................................. (1.20) (0.38) (0.81) (0.05) --
------ ------ ------ ------ -----
Net increase (decrease) in net asset value.................. 4.04 (0.87) 0.73 0.93 1.27
---- ------ ---- ---- ----
Net asset value, end of period.............................. $16.10 $12.06 $12.93 $12.20 $11.27
====== ====== ====== ====== ======
Total return................................................ 43.20%(2) (3.54)% 12.64% 8.77% 12.70%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...................... $249,396 $185,476 $257,550 $261,487 $46,026
RATIOS TO AVERAGE NET ASSETS:
Net investment income including reimbursement/waiver... (0.43)%(3) (0.39)% (0.35)% 0.17% 1.75%(3)
Net investment income excluding reimbursement/waiver... (0.68)%(3) (0.64)% (0.60)% (0.21)% 0.22%(3)
Operating expenses including reimbursement/waiver...... 0.90%(3) 0.93% 0.91% 0.77% 0.20%(3)
Operating expenses excluding reimbursement/waiver...... 1.15%(3) 1.18% 1.16% 1.15% 1.73%(3)
Portfolio turnover rate..................................... 45.05% 61.02% 48.60% 57.46% 0.00%
</TABLE>
------------------------------
* The Fund commenced operations on March 28, 1996 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds. On _______,
2000, the Predecessor Fund was reorganized as a new portfolio of Galaxy.
Prior to the reorganization, the Predecessor Fund offered and sold one
class of shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their shares for Trust Shares and BKB Shares of
the Fund.
(1) Period from commencement of operations.
(2) Not annualized
(3) Annualized.
36 GALAXY RETAIL A & B SHARES
<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 will contain more information about each
Fund and a discussion about the market conditions and investment strategies that
had a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's web site at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
PRORETBKB (6/00)
<PAGE>
Galaxy Trust Shares
The Galaxy Fund
Prospectus
June 1, 2000
Galaxy Institutional Money Market Fund
Galaxy Institutional Treasury Money Market Fund
Galaxy Intermediate Tax-Exempt Bond Fund
Galaxy Connecticut Intermediate Municipal Bond Fund
Galaxy Massachusetts Intermediate Municipal Bond Fund
Galaxy Florida Municipal Bond Fund
Galaxy Growth Fund II
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]
Galaxy
Funds
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
Risk/return summary ....................................................... 1
Introduction .............................................................. 1
Galaxy Institutional Money Market Fund .................................... 2
Galaxy Institutional Treasury Money Market Fund ........................... 5
Galaxy Intermediate Tax-Exempt Bond Fund .................................. 8
Galaxy Connecticut Intermediate Municipal Bond Fund .......................12
Galaxy Massachusetts Intermediate Municipal Bond Fund .....................17
Galaxy Florida Municipal Bond Fund ........................................22
Galaxy Growth Fund II .....................................................27
Additional information about risk .........................................31
Investor guidelines .......................................................32
Fund management ...........................................................34
How to invest in the Funds ................................................35
Buying, selling and exchanging shares .....................................35
How to buy shares ....................................................36
How to sell shares ...................................................36
Other transaction policies ...........................................37
How to exchange shares - .............................................37
Money Market Funds Only
Dividends, distributions and taxes ........................................38
Financial highlights ......................................................41
</TABLE>
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
This prospectus describes the Galaxy Institutional Money Market Fund, Galaxy
Institutional Treasury Money Market Fund, Galaxy Intermediate Tax-Exempt Bond
Fund, Galaxy Connecticut Intermediate Municipal Bond Fund, Galaxy Massachusetts
Intermediate Municipal Bond Fund, Galaxy Florida Municipal Bond Fund and Galaxy
Growth Fund II. Each Fund commenced operations as a separate portfolio (the
"Predecessor Fund") of the Boston 1784 Funds. On _______ 2000, each Predecessor
Fund was reorganized as a new portfolio of Galaxy.
On the following pages, you'll find important information about each Fund,
including:
- the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- the main risks associated with an investment in the Fund
- the past performance of the Fund measured on both a year-by-year and
long-term basis
- the fees and expenses that you will pay as an investor in the Fund.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as the
ADVISER, is the investment adviser for all of these Funds. The Adviser, an
indirect wholly-owned subsidiary of FleetBoston Financial Corporation, was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$68 billion in assets.
--------------------------------------------------------------------------------
AN INVESTMENT IN THE FUNDS ISN'T A FLEET BANK DEPOSIT AND IT ISN'T INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE GALAXY INSTITUTIONAL MONEY MARKET FUND AND GALAXY
INSTITUTIONAL TREASURY MONEY MARKET FUND SEEK TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT'S POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUNDS. YOU COULD ALSO LOSE MONEY BY INVESTING IN ANY OF THE OTHER FUNDS.
GALAXY TRUST SHARES 1
<PAGE>
GALAXY INSTITUTIONAL MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to preserve the principal value of a shareholder's investment and
to maintain a high degree of liquidity while providing current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in high quality short-term debt obligations,
including commercial paper, asset-backed commercial paper, corporate bonds, U.S.
Government agency obligations, taxable municipal securities and repurchase
agreements. The Fund may invest more than 25% of its assets in money market
instruments issued by U.S. and foreign banks, and in U.S. Government
obligations.
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.
- 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:]
MATURITY
The maturity of a security is the date when the issuer must repay the security's
entire principal amount to an investor, such as a Fund.
[Sidenote:]
MONEY MARKET INSTRUMENTS
Money market instruments are short-term debt obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money
market instruments purchased by the Galaxy money market funds must meet
strict requirements as to investment quality, maturity and diversification.
The Galaxy money market funds do not invest in securities with remaining
maturities of more than 397 days (subject to certain exceptions) and the
average maturity of all securities held by a particular Galaxy money market
fund must be 90 days or less. Prior to purchasing a money market instrument
for a particular Galaxy money market fund, the Adviser must determine that
the instrument carries very little risk. Each Galaxy money market fund tries
to maintain its share price at $1.00 to protect your investment from loss.
2 GALAXY TRUST SHARES
<PAGE>
GALAXY INSTITUTIONAL MONEY MARKET FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future. The Fund only offers one class of shares which are referred to in this
prospectus as Trust Shares.
The Fund began operations on November 5, 1997 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _______ 2000, 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 Trust Shares of the Fund. The
returns shown below are for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
---------------------
1998 1999
---------------------
<S> <C>
5.40% 4.99%
---------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
1.39%.
[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.
[Sidenote:]
Best quarter: 1.35% for the quarter ending September 30, 1998
Worst quarter: 1.16% for the quarter ending June 30, 1999
GALAXY TRUST SHARES 3
<PAGE>
GALAXY INSTITUTIONAL MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1 year Since inception
---------------------------------------------------------------------
<S> <C> <C>
Predecessor Fund 4.99% 5.22% (11/5/97)
---------------------------------------------------------------------
</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 following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Total Fund operating
Management fees fees Other expenses expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.20% None 0.10%(1) 0.30%(1)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund's administrator is waiving a portion of its administration fees
(which are included in Other expenses) so that Other expenses are expected
to be 0.08%. Total Fund operating expenses after this waiver are expected
to be 0.28%. This fee waiver may be revised or discontinued at any time.
However, the Adviser has agreed to waive fees and reimburse expenses in
such amounts as are necessary to ensure that the Total Fund operating
expenses for Trust Shares of the Fund do not exceed 0.28% for a period of
one year following the reorganization.
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 $31 $97 $169 $381
---------------------------------------------------------------------------------
</TABLE>
4 GALAXY TRUST SHARES
<PAGE>
GALAXY INSTITUTIONAL TREASURY MONEY MARKET FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to preserve the principal value of a shareholder's investment and
maintain a high degree of liquidity while providing current income.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in short-term U.S. Government obligations, including
U.S. Treasury securities, U.S. Government agency obligations and repurchase
agreements secured by U.S. Government obligations. Under normal circumstances,
the Fund invests at least 65% of its total assets in money market instruments
issued by the U.S. Treasury, including bills, notes and bonds, and repurchase
agreements secured by U.S. Treasury securities. The Fund invests the rest of its
assets in U.S. Government obligations issued by agencies or instrumentalities,
including mortgage-backed securities.
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.
- 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. 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 TRUST SHARES 5
<PAGE>
GALAXY INSTITUTIONAL TREASURY MONEY MARKET FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future. The Fund only offers one class of shares which are referred to in this
prospectus as Trust Shares.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On ______ 2000, 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 Trust Shares of the Fund. The returns shown below are for the
Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4.04% 5.69% 5.14% 5.30% 5.20% 4.81%
--------------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
1.34%.
[Sidenote:]
Best quarter: 1.43% for the quarter ending June 30, 1995
Worst quarter: 0.76% for the quarter ending March 31, 1994
6 GALAXY TRUST SHARES
<PAGE>
GALAXY INSTITUTIONAL TREASURY MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
1 year 5 years Since inception
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund 4.81% 5.23% 4.85% (6/14/93)
-------------------------------------------------------------------------------------------------
</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 following table shows the fees and expenses you may pay when you buy and
hold shares of the Fund.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Distribution Total Fund operating
Management fees (12b-1) fees Other expenses expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.20% None 0.10%(1) 0.30%(1)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Fund's administrator is waiving a portion of its administration fees
(which are included in Other expenses) so that Other expenses are expected
to be 0.06%. Total Fund operating expenses after this waiver are expected
to be 0.26%. This fee waiver may be revised or discontinued at any time.
However, the Adviser has agreed to waive fees and reimburse expenses in
such amounts as are necessary to ensure that the Total Fund operating
expenses for Trust Shares of the Fund do not exceed 0.26% for a period of
one year following the reorganization.
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 $31 $97 $169 $381
-----------------------------------------------------------------------------------
</TABLE>
GALAXY TRUST SHARES 7
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income, exempt from federal
income tax, consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in a diversified portfolio of 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 circumstances, at least 80% of the Fund's net
assets are invested in municipal securities or in mutual funds that invest in
municipal securities. The Fund may also invest up to 20% of its net assets in
debt securities that pay interest that is not exempt from federal tax, such as
U.S. Government obligations, corporate bonds, money market instruments,
including commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. The
Adviser expects, however, that most of the securities purchased by the Fund will
have one of the top three ratings assigned by S&P or 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 investment
grade. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by either S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five and ten years.
[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.
[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 TRUST SHARES
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
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 carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- HEDGING - The Fund may invest in derivatives, such as futures and options
on futures, to hedge against market risk. There is 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. These instruments may
be leveraged so that small changes may produce disproportionate losses to
the Fund.
- 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.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION SECURITIES are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION SECURITIES are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
GALAXY TRUST SHARES 9
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _______ 2000 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 Trust Shares and BKB Shares of the Fund. Shareholders of the
Predecessor Fund who purchased their shares through an investment management,
trust, custody, or other agency relationship with BankBoston, N.A. received
Trust Shares of the Fund. The returns shown below are for the Predecessor
Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
-3.02% 14.31% 4.20% 9.10% 6.41% -2.95%
------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.82%.
[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.
[Sidenote:]
Best quarter: 5.39% for the quarter ending March 31, 1995
Worst quarter: -4.20% for the quarter ending March 31, 1994
10 GALAXY TRUST SHARES
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
1 year 5 years Since inception
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -2.95% 6.06% 5.11% (6/14/93)
-----------------------------------------------------------------------------------------------------
Lehman Brothers
7-Year Municipal Bond Index -0.14% 6.36% 5.28% (since 5/31/93)
-----------------------------------------------------------------------------------------------------
</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.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Management Distribution Other expenses Total Fund operating
(12b-1) fees expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.13% 0.88%(1)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.63%. Total Fund operating expenses after this waiver
are expected to be 0.76%. This fee waiver may be revised or discontinued at
any time. However, the Adviser has agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that Total Fund
operating expenses for Trust Shares of the Fund do not exceed 0.76% for a
period of one year following the reorganization.
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 $90 $281 $488 $1,084
---------------------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
[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 TRUST SHARES 11
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income exempt from both federal
and Connecticut personal income tax, with a secondary goal of preserving
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Connecticut municipal securities. Connecticut municipal securities 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 net assets in taxable debt securities, such as U.S. Government
obligations, corporate bonds, money market instruments, including commercial
paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. The Adviser expects, however, that most of the securities
purchased by the Fund will have one of the top three ratings assigned by S&P
or 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 investment grade. If that happens, the Fund
doesn't have to sell the security unless
12 GALAXY TRUST SHARES
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
the Adviser determines that under the circumstances the security is no longer
an appropriate investment for the Fund. However, the Fund will sell promptly
any securities that are not rated investment grade by S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five 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.
In addition, the Fund carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will
GALAXY TRUST SHARES 13
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in 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.
- HEDGING - The Fund may invest in derivatives, such as futures and options
on futures, to hedge against market risk. There is 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. These instruments may
be leveraged so that small changes may produce disproportionate losses to
the Fund.
- 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.
14 GALAXY TRUST SHARES
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on August 1, 1994 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _________ 2000 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 Trust Shares and BKB Shares of
the Fund. Shareholders of the Predecessor Fund who purchased their shares
through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received Trust Shares of the Fund. The
returns shown below are for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14.66% 3.63% 8.53% 6.67% -2.81%
-----------------------------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.66%.
[Sidenote:]
Best quarter: 5.91% for the quarter ending March 31, 1995
Worst quarter: -2.28% for the quarter ending June 30, 1999
GALAXY TRUST SHARES 15
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
1 year 5 years Since inception
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Predecessor Fund -2.81% 5.98% 5.32% (8/1/94)
------------------------------------------------------------------------------------------------------
Lehman Brothers
7-Year Municipal Bond Index -0.14% 6.36% 5.57% (since 7/31/94)
------------------------------------------------------------------------------------------------------
</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.
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Management fees Distribution Other expenses Total Fund operating
(12b-1) fees expenses
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.15% 0.90%(1)
------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.63%. Total Fund operating expenses after this waiver
are expected to be 0.78%. This fee waiver may be revised or discontinued at
any time. However, the Adviser has agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for Trust Shares of the Fund do not exceed 0.78% for a
period of one year following the reorganization.
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 $92 $287 $498 $1,108
----------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
[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.
16 GALAXY TRUST SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income, exempt from both
federal and Massachusetts personal income tax, consistent with preservation of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Massachusetts municipal securities. Massachusetts municipal securities
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 net assets in taxable obligations, such as U.S.
Government obligations, corporate bonds, money market instruments, including
commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. The Adviser expects, however, that most of the securities
purchased by the Fund will have one of the top three ratings assigned by S&P
or 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 investment grade. If that happens, the Fund
GALAXY TRUST SHARES 17
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund. However, the Fund will sell promptly any securities that are not rated
investment grade by S&P or Moody's if the securities exceed 5% of the Fund's
net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances the Fund's average weighted maturity will be
between five 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.
In addition, the Fund carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will
18 GALAXY TRUST SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
decrease and the Fund may suffer from the inability to invest in
higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in 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.
- HEDGING - The Fund may invest in derivatives, such as futures and options
on futures, to hedge against market risk. There is 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. These instruments may
be leveraged so that small changes may produce disproportionate losses to
the Fund.
- 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 TRUST SHARES 19
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _______ 2000 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 Trust Shares and BKB Shares of the Fund. Shareholders of the
Predecessor Fund who purchased their shares through an investment management,
trust, custody, or other agency relationship with BankBoston, N.A. received
Trust Shares of the Fund. The returns shown below are for the Predecessor
Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-5.45% 13.73% 3.32% 8.89% 5.91% -2.16%
---------------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.59%.
[Sidenote:]
Best quarter: 5.45% for the quarter ending March 31, 1995
Worst quarter: -5.15% for the quarter ending March 31, 1994
20 GALAXY TRUST SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
1 year 5 years Since inception
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares -2.16% 5.80% 4.58% (6/14/93)
---------------------------------------------------------------------------------------------------
Lehman Brothers -0.14% 6.36% 5.28% (since 5/31/93)
7-Year Municipal Bond
Index
---------------------------------------------------------------------------------------------------
</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 (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Management fees Distribution Other expenses Total Fund operating
(12b-1) fees expenses
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.15% 0.90%(1)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.63%. Total Fund operating expenses after this waiver
are expected to be 0.78%. This fee waiver may be revised or discontinued at
any time. However, the Adviser has agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for Trust Shares of the Fund do not exceed 0.78% for a
period of one year following the reorganization.
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 $92 $287 $498 $1,108
---------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
[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 TRUST SHARES 21
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income exempt from federal
income tax through Fund shares which are exempt from Florida intangible personal
property tax, with a secondary goal of preserving capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Florida municipal securities. Florida municipal securities are
securities issued by the State of Florida and other government issuers that pay
interest which is exempt from federal income tax and that are exempt from
Florida intangible personal property tax. Under normal conditions, the Fund will
invest no more than 20% of its net assets in taxable debt securities such as
U.S. Government obligations, corporate bonds, money market instruments,
including commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. The Adviser expects, however, that most of the securities
purchased by the Fund will have one of the top three ratings assigned by S&P
or 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 investment grade. If that happens, the Fund
22 GALAXY TRUST SHARES
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund. However, the Fund will sell promptly any securities that are not rated
investment grade by either S&P or Moody's if the securities exceed 5% of the
Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five 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.
In addition, the Fund carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates
are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt
security is to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make
payments of principal and interest than is the case with higher-rated
securities. The ability of a state or local government issuer to make
payments can be affected by many factors, including economic conditions,
the flow of tax revenues and changes in the level of federal, state or
local aid. Some municipal obligations are payable only from limited revenue
sources or by private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest
GALAXY TRUST SHARES 23
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND
rates, the value of the obligation will decrease and the Fund may suffer
from the inability to invest in higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers.
As a result, a change in the value of any one investment held by the Fund
may affect the overall value of the Fund more than it would affect a
diversified fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in Florida municipal
securities, it is likely to be especially susceptible to economic,
political and regulatory events that affect Florida. Other considerations
affecting the Fund's investments in Florida municipal securities are
summarized in the Statement of Additional Information.
- HEDGING - The Fund may invest in derivatives, such as futures and options
on futures, to hedge against market risk. There is 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. These instruments may
be leveraged so that small changes may produce disproportionate losses to
the Fund.
- 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.
24 GALAXY TRUST SHARES
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future. The Fund only offers one class of shares which are referred to in this
prospectus as Trust Shares.
The Fund began operations on June 30, 1997 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On _________ 2000, 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 Trust Shares of the Fund. The
returns shown below are for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
<TABLE>
<CAPTION>
------------------------
1998 1999
------------------------
<S> <C>
6.37% -2.78%
------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.40%.
[Sidenote:]
Best quarter: 3.06% for the quarter ending September 30, 1998
Worst quarter: -2.38% for the quarter ending June 30, 1999
GALAXY TRUST SHARES 25
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1 year Since inception
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -2.78% 3.47% (6/30/97)
--------------------------------------------------------------------------------
Lehman Brothers -0.14% 4.37% (since 6/30/97)
7-Year Municipal
Bond Index
--------------------------------------------------------------------------------
</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 (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Management fees Distribution Other expenses Total Fund operating
(12b-1) fees expenses
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75%(1) None 0.22% 0.97%(1)
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.58%. Total Fund operating expenses after this waiver
are expected to be 0.80%. This fee waiver may be revised or discontinued at
any time. However, the Adviser has agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for Trust Shares of the Fund do not exceed 0.80% for a
period of one year following the reorganization.
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:]
PORTFOLIO MANAGER
The Adviser's Tax-Exempt Investment Policy Committee is responsible for the
day-to-day management of the Fund's investment portfolio.
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
26 GALAXY TRUST SHARES
<PAGE>
GALAXY GROWTH FUND II
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with capital appreciation. Dividend income,
if any, is incidental to capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in common stock (including depositary receipts) of
U.S. and foreign companies which the Adviser believes have above-average growth
potential. The Fund normally invests 80% to 90% or more of its total assets in
these securities, although the Fund may invest up to 35% of its total assets in
other securities, such as convertible and non-convertible debt securities,
preferred stock, warrants and money market instruments.
The Fund principally invests in U.S. companies with market capitalizations of at
least $250 million, although the Fund also may invest in companies with smaller
capitalizations. The Fund may invest up to 25% of its total assets in the
securities of foreign companies, including companies in developing countries.
While some of the Fund's investments may pay dividends, current income is not a
consideration when selecting investments.
In selecting securities for the Fund, the Adviser uses a "bottom-up" approach.
It looks for companies that it believes are in dynamic high-growth sectors of
the world economy and that are thought to have dominant or strong competitive
positions within their sectors. The Adviser also looks for companies thought to
have quality management and that are expected to have strong earnings growth
potential.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund.
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.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
[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.
GALAXY TRUST SHARES 27
<PAGE>
GALAXY GROWTH FUND II
In addition, the Fund 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.
- 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.
- 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.
- HEDGING - The Fund may engage in foreign currency transactions to hedge
against 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. These instruments
may be leveraged so that small changes may produce disproportionate losses
to the Fund.
- 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.
28 GALAXY TRUST SHARES
<PAGE>
GALAXY GROWTH FUND II
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on March 28, 1996 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On 2000, 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 Trust Shares and BKB Shares of
the Fund. Shareholders of the Predecessor Fund who purchased their shares
through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received Trust Shares of the Fund. The
returns shown below are for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
------------------------------------
1997 1998 1999
------------------------------------
<S> <C> <C>
13.92% 1.36% 70.42%
------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
15.22%.
[Sidenote:]
Best quarter: 53.66% for the quarter ending December 31, 1999
Worst quarter: -22.74% for the quarter ending September 30, 1998
GALAXY TRUST SHARES 29
<PAGE>
GALAXY GROWTH FUND II
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1 year Since inception
------------------------------------------------------------------------------
<S> <C> <C>
Predecessor Fund 70.42% 24.95% (3/28/96)
------------------------------------------------------------------------------
Russell 2000 Index 21.26% 13.41% (since 3/31/96)
------------------------------------------------------------------------------
</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 (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Management Distribution Other expenses Total Fund operating
fees (12b-1) fees expenses
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 0.75% None 0.15% 0.90%(1)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Adviser has agreed to waive fees and reimburse expenses in such amounts
as are necessary to ensure that the Total Fund operating expenses for Trust
Shares of the Fund do not exceed 0.90% for a period of one year following
the reorganization.
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 $92 $287 $498 $1,108
--------------------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
The Russell 2000 Index is an unmanaged index which tracks the performance of the
2000 smallest of the 3000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio managers are Theodore E. Ober and Eugene D. Takach. They
are primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Ober, who has over 11 years of experience in investment
management and research analysis, has been a Research Analyst, Fund Manager and
Senior Fund Manager with the Adviser and its affiliated organizations since
1987. Mr. Takach, who has over 30 years of experience in investment management,
research analysis and securities trading, has been a portfolio manager with the
Adviser and its affiliated organizations since 1971. Mr. Ober and Mr. Takach
have co-managed the Predecessor Fund since it began operations.
30 GALAXY TRUST SHARES
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the 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) and, in the case of the Intermediate Tax-Exempt Bond
Fund, Connecticut Intermediate Municipal Bond Fund, Florida Municipal Bond Fund,
Massachusetts Intermediate Municipal Bond Fund and Growth Fund II, taxable
investments, such as money market instruments and debt securities issued or
guaranteed by the U.S. Government or its agencies. These strategies could
prevent a Fund from achieving its investment objective and could reduce the
Fund's return and affect its performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment strategies
of the Funds - and the risks involved - are described in detail in the Statement
of Additional Information (SAI) which is referred to on the back cover of this
prospectus.
YEAR 2000 RISKS
Over the past several years, the Adviser and the Funds' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. The Adviser
and the Funds' other major service providers are continuing to monitor the Year
2000 or Y2K problem and there can be no assurances that there will be no adverse
impact to the Funds as a result of future computer-related Y2K difficulties.
GALAXY TRUST SHARES 31
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the 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.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Galaxy Fund May be best suited for investors who...
----------------------------------------------------------------------------------------------------------------
<S> <C>
Galaxy Institutional Money Market Fund - are investing for a short period of time
- are looking for higher returns than are
usually available from Treasury money market
funds
----------------------------------------------------------------------------------------------------------------
Galaxy Institutional Treasury Money Market Fund - are investing for a short period of time
- want the added safety of U.S. Government
securities
----------------------------------------------------------------------------------------------------------------
Galaxy Intermediate Tax-Exempt Bond Fund - are seeking current income that is exempt from
federal income tax
- are seeking a higher yield than is available
from shorter-term tax-exempt securities or
money market funds
----------------------------------------------------------------------------------------------------------------
Galaxy Connecticut Intermediate Municipal - reside in Connecticut and are seeking current
Bond Fund income that is exempt from federal income tax
and Connecticut personal income tax
- are seeking a higher yield than is available
from shorter-term tax-exempt securities or
money market funds
----------------------------------------------------------------------------------------------------------------
Galaxy Massachusetts Intermediate Municipal - reside in Massachusetts and are seeking
Bond Fund current income that is exempt from federal
income tax and Massachusetts personal income
tax
- are seeking a higher yield than is available
from shorter-term tax-exempt securities or
money market funds
----------------------------------------------------------------------------------------------------------------
32 GALAXY TRUST SHARES
<PAGE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Galaxy Fund May be best suited for investors who...
----------------------------------------------------------------------------------------------------------------
<S> <C>
Galaxy Florida Municipal Bond Fund - reside in Florida and are seeking current
income that is exempt from federal income tax
through an investment that is exempt from
Florida intangible personal property tax
- are seeking a higher yield than is available
from shorter-term tax-exempt securities or
money market funds
----------------------------------------------------------------------------------------------------------------
Galaxy Growth Fund II - are seeking long-term growth
- are able to tolerate the additional risks of
investing in smaller companies
- are not seeking income
----------------------------------------------------------------------------------------------------------------
</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.
GALAXY TRUST SHARES 33
<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. Prior to the
reorganization, BankBoston N.A. ("BankBoston") served as the investment adviser
to each of the Predecessor Funds. BankBoston is an indirect wholly-owned
subsidiary of FleetBoston Financial Corporation and an affiliate of the Adviser.
MANAGEMENT FEES
The management fees paid to BankBoston by each Predecessor Fund during the
fiscal year ended May 31, 1999 are set forth below.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Fund Management fee as a % of average net assets
----------------------------------------------------------------------------------------------------
<S> <C>
Institutional Money Market 0.15%
----------------------------------------------------------------------------------------------------
Institutional Treasury Money Market 0.20%
----------------------------------------------------------------------------------------------------
Intermediate Tax-Exempt Bond 0.68%
----------------------------------------------------------------------------------------------------
Connecticut Intermediate Municipal Bond 0.67%
----------------------------------------------------------------------------------------------------
Massachusetts Intermediate Municipal Bond 0.67%
----------------------------------------------------------------------------------------------------
Florida Municipal Bond 0.65%
----------------------------------------------------------------------------------------------------
Growth II 0.74%
----------------------------------------------------------------------------------------------------
</TABLE>
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 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 (other than the Galaxy Intermediate Tax-Exempt Bond Fund,
Galaxy Connecticut Intermediate Municipal Bond Fund, Galaxy Massachusetts
Intermediate Municipal Bond Fund and Galaxy Florida Municipal Bond 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.
34 GALAXY TRUST SHARES
<PAGE>
HOW TO INVEST IN THE FUNDS
BUYING, SELLING AND EXCHANGING SHARES
Trust Shares of the Funds (other than the Institutional Money Market Fund and
Institutional Treasury 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 FleetBoston Financial Corporation.
- 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 Money Market Fund and Institutional Treasury
Money Market Fund (referred to as the Money Market Funds) 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 financial
institution or employer-sponsored plan are open for business.
If your order to buy shares of a Money Market Fund 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 buy
shares of a Money Market Fund is received and accepted by Galaxy's distributor
after 11:00 a.m. (Eastern time) on a business day, the price you pay will be the
NAV per share 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 buy shares
of each of the other Funds is the NAV per share next determined after your order
is accepted. The price at which you sell shares of each Fund, including the
Money Market Funds, 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) (for the Money Market Funds only) and at the
close of regular trading that day (usually 4:00 p.m. Eastern time) for each
Fund, including the Money Market Funds. The New York Stock Exchange is
generally open for trading every Monday through Friday, except for national
holidays.
[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.
35 GALAXY TRUST SHARES
<PAGE>
The Money Market Funds' assets are valued at amortized cost, which is
approximately equal to market value. For each of the other Funds, if market
prices are readily available for securities owned by 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 NAV 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 financial
institution or employer-sponsored plan holds the shares in your name and
receives all confirmations of purchases and sales.
The minimum initial aggregate investment by a financial institution purchasing
shares of a Money Market Fund on behalf of its customers is $2,000,000. There is
no minimum investment requirement for additional purchases.
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.
[Sidenote:]
INVESTMENT MINIMUMS
Except for the Money Market Funds, 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.
36 GALAXY TRUST SHARES
<PAGE>
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 financial 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 Money Market Funds, 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 - MONEY MARKET FUNDS ONLY
If you are a customer of a financial institution, you may exchange Trust Shares
of the Institutional Money Market Fund and/or the Institutional Treasury 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 a 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 TRUST SHARES 37
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund, except the Growth Fund II, generally declares dividends from net
investment income daily and pays them monthly. The Growth Fund II generally pays
dividends from net investment income on a semi-annual basis. The Money Market
Funds expect that all, or substantially all, of their distributions will consist
of ordinary income. It is expected that the annual distributions of the
Intermediate Tax-Exempt Bond, Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond and Florida Municipal Bond Funds will
be mainly income dividends. It is expected that the annual distributions of the
Growth Fund II will normally - but not always - consist primarily of capital
gains rather than ordinary income. Each of the Funds normally pays any realized
capital gains at least once a year, although the Money Market Funds do not
expect to realize net long-term capital gains. Dividends and distributions are
paid in cash unless you indicate in a letter to Galaxy that you want to have
dividends and distributions reinvested in additional shares.
FEDERAL TAXES
MONEY MARKET FUNDS AND GROWTH FUND II
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions
(including distributions attributable to short-term capital gains of a Fund)
will generally be taxable to you as ordinary income. You will be subject to
income tax on these distributions regardless of whether they are paid in cash or
reinvested in additional shares. Taxable dividends paid to you in January may be
taxable as if they had been paid the previous December. You will be notified
annually of the tax status of distributions to you.
Dividends paid by the Growth Fund II to its corporate shareholders and that are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements and
debt financing limitations.
38 GALAXY TRUST SHARES
<PAGE>
INTERMEDIATE TAX-EXEMPT BOND FUND, CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND,
MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND AND FLORIDA MUNICIPAL BOND FUND
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.
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. If
you receive an exempt-interest dividend with respect to any share and the share
is held by you for six months or less, any loss on the sale or exchange of the
share will be disallowed to the extent of such dividend amount.
You should note that a portion of the exempt-interest dividends paid by 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.
ALL FUNDS
In the case of any Fund other than Money Market Funds 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.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months except that any loss realized on
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends that were received on the shares.
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.
GALAXY TRUST SHARES 39
<PAGE>
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of a Fund's distributions, if any, that are attributable to interest
on U.S. Government securities or on securities of the particular state or
localities within the state. 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, or from any capital gains, will be subject to the
particular state's taxes. However, with respect to the Connecticut
Intermediate Municipal Bond Fund, dividends, if any, derived from long-term
capital gains on Connecticut municipal securities of issuers in Connecticut
will not be subject to the Connecticut state income tax on individuals,
trusts and estates if paid on Fund shares held as capital assets.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
40 GALAXY TRUST SHARES
<PAGE>
FINANCIAL HIGHLIGHTS
Each Fund began operations as a separate portfolio (the Predecessor Fund) of
the Boston 1784 Funds. On _______ 2000, each Predecessor Fund was reorganized
as a new portfolio of Galaxy. As discussed above in each Fund's risk/return
summary, prior to the reorganization, each Predecessor Fund offered and sold
a single class of shares. The financial highlights tables on the following
pages will help you understand the financial performance for each Predecessor
Fund for the six-month period ended November 30, 1999 and for the past five
fiscal years (or the period since a particular Predecessor Fund began
operations). Certain information reflects the financial performance of a
single share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Predecessor
Fund, assuming all dividends and distributions were reinvested. The
information for the semi-annual period ended November 30, 1999 is unaudited
and such information, along with the Predecessor Fund's financial statements,
is included in the Predecessor Funds' Semi-Annual Reports and incorporated by
reference into the SAI. The information for the past five fiscal years or
periods has been audited by PricewaterhouseCoopers, LLP, independent
auditors, whose report, along with the Predecessor Funds' financial
statements, are included in the Predecessor Funds' Annual Reports and are
incorporated by reference into the SAI. The Annual and Semi-Annual Reports
and SAI are available free of charge upon request.
GALAXY TRUST SHARES 41
<PAGE>
GALAXY INSTITUTIONAL MONEY MARKET FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended For the For the
November 30, year ended period ended
(unaudited) May 31 May 31
----------------- ---------- ------------
1999 1999 1998(1)
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period ..... $1.00 $1.00 $ 1.00
----- ----- ------
Income from investment operations:
Net investment income................... 0.02 0.05 0.03
Net realized and unrealized gain
(loss) on investments................ -- -- --
----- ----- ------
Total from investment operations .... 0.02 0.05 0.03
---- ---- ----
Less dividends:
Dividends from net investment
income............................ (0.02) (0.05) (0.03)
Dividends from net realized capital
gains............................. -- -- --
----- ----- ------
Total dividends......................... (0.02) (0.05) (0.03)
Net increase (decrease) in net asset value -- -- --
----- ----- ------
Net asset value, end of period............ $1.00 $ 1.00 $ 1.00
===== ====== ======
Total return.............................. 4.95%(2) 5.10% 5.55%(2)
Ratios/supplemental data:
Net assets, end of period (000's) ...... $849,986 $516,901 $302,338
Ratios to average net assets:
Net investment income including
reimbursement/ waiver................... 4.98%(2) 4.93% 5.36%(2)
Net investment income excluding
reimbursement/ waiver................... 4.97%(2) 4.88% 5.21%(2)
Operating expenses including
reimbursement/waiver................. 0.30%(2) 0.30% 0.27%(2)
Operating expenses excluding
reimbursement/waiver................. 0.31%(2) 0.35% 0.42%(2)
-------------------------------------------
</TABLE>
* The Fund commenced operations on November 5, 1997 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On _________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for shares of the Fund.
(1) For the period from commencement of operations.
(2) Annualized.
42 GALAXY TRUST SHARES
<PAGE>
GALAXY INSTITUTIONAL TREASURY MONEY MARKET FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
six month
period ended
November 30,
(unaudited) For the year ended May 31,
-------------- -------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- -------- --------
Income from investment operations:
Net investment income............... 0.02 0.05 0.05 0.05 0.05 0.05
Net realized and unrealized gain
(loss) on investments............ --
---------- ---------- ---------- ---------- -------- --------
Total from investment
operations..................... 0.02 0.05 0.05 0.05 0.05 0.05
---------- ---------- ---------- ---------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.02) (0.05) (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains.................... -- -- -- -- -- --
---------- ---------- ---------- ---------- -------- --------
Total dividends.................. (0.02) (0.05) (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 $ 1.00 $ 1.00
========== =========== =========== ========== ======== ========
Total return.......................... 4.77%(1) 4.90% 5.36% 5.16% 5.45% 5.05%
Ratios/supplemental data:
Net assets, end of period
(000's) ........................... $4,988,094 $4,346,037 $4,285,801 $2,591,487 $644,733 $395,585
Ratios to average net assets:
Net investment income including
reimbursement/ waiver............ 4.80%(1) 4.79% 5.24% 5.05% 5.29% 5.12%
Net income excluding
reimbursement/waiver ............ 4.80%(1) 4.79% 5.24% 5.04% 5.22% 5.01%
Operating expenses including
reimbursement/waiver............. 0.30%(1) 0.31% 0.33% 0.33% 0.32% 0.30%
Operating expenses excluding
reimbursement/waiver............ 0.30%(1) 0.31% 0.33% 0.34% 0.39% 0.41%
</TABLE>
--------------------
* The Fund began operations on June 14, 1993 as a separate portfolio (the
"Predecessor Fund") of the Boston 1784 Funds. On _____________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to
the reorganization, the Predecessor Fund offered and sold one class of
shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their shares for shares of the Fund.
(1) Annualized.
GALAXY TRUST SHARES 43
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
six month
period ended
November 30,
(unaudited) For the year ended May 31,
-------------- -------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $10.33 $10.52 $10.18 $9.99 $ 10.14 $9.90
-------- --------- --------- --------- -------- -----------
Income from investment
operations:
Net investment income......... 0.22 0.45 0.48 0.50 0.51 0.48
Net realized and unrealized
gain (loss) on investments.... (0.46) (0.01) 0.44 0.19 (0.09) 0.24
-------- --------- --------- --------- -------- -----------
Total from investment
operations....................... (0.24) 0.44 0.92 0.69 0.42 0.72
-------- --------- --------- --------- -------- -----------
Less dividends:
Dividends from net
investment income.......... (0.22) (0.45) (0.48) (0.50) (0.51) (0.48)
Dividends from net
realized capital gains..... (0.11) (0.18) (0.10) -- (0.06) --
-------- --------- --------- --------- -------- -----------
Total dividends..................... (0.33) (0.63) (0.58) (0.50) (0.57) (0.48)
-------- --------- --------- --------- -------- -----------
Net increase (decrease) in net
asset value...................... (0.57) (0.19) 0.34 0.19 (0.15) 0.24
-------- --------- --------- --------- -------- -----------
Net asset value, end of period...... $ 9.76 $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14
======== ========= ========= ========= ======== ===========
Total return........................ (2.33)%(1) 4.24% 9.24% 7.74% 4.31% 7.58%
Ratios/supplemental data:
Net assets, end of period
(000's)................. $345,162 $356,995 $ 303,578 $ 250,526 $196,787 $ 176,345
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 4.43%(2) 4.31% 4.62% 4.92% 4.90% 5.02%
Net investment income
excluding reimbursement/
waiver..................... 4.12%(2) 4.00% 4.30% 4.55% 4.48% 4.56%
Operating expenses
including reimbursement/
waiver..................... 0.80%(2) 0.80% 0.80% 0.80% 0.79% 0.80%
Operating expenses
excluding reimbursement/
waiver..................... 1.11%(2) 1.11% 1.12% 1.17% 1.21% 1.26%
Portfolio turnover rate............. 31.81% 68.58% 34.06% 33.24% 37.35% 74.74%
</TABLE>
-------------------------------
* The Fund commenced operations on June 14,1993 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On ________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares through an
investment management, trust, custody, or other agency relationship with
BankBoston, N.A. received Trust Shares of the Fund.
(1) Not annualized.
(2) Annualized.
44 GALAXY TRUST SHARES
<PAGE>
GALAXY CONNECTICUTT INTERMEDIATE MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
six month
period ended For the
November 30, period ended
(unaudited) For the year ended May 31, May 31,
------------ -----------------------------------------------------------------
1999 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $10.67 $10.81 $10.38 $10.17 $10.27 $10.00
-------- --------- --------- --------- ---------- --------
Income from investment
operations:
Net investment income......... 0.23 0.48 0.50 0.51 0.53 0.45
Net realized and unrealized
gain (loss) on investments.... (0.43) (0.08) 0.45 0.21 (0.10) 0.27
-------- --------- --------- --------- ---------- --------
Total from investment
operations....................... (0.20) 0.40 0.95 0.72 0.43 0.72
-------- --------- --------- --------- ---------- --------
Less dividends:
Dividends from net
investment income.......... (0.23) (0.48) (0.50) (0.51) (0.53) (0.45)
Dividends from net
realized capital gains..... (0.05) (0.06) (0.02) -- -- --
-------- --------- --------- --------- ---------- --------
Total dividends..................... (0.28) (0.54) (0.52) (0.51) (0.53) (0.45)
-------- --------- --------- --------- ---------- --------
Net increase (decrease) in net
asset value...................... (0.48) (0.14) 0.43 0.21 (0.10) 0.27
-------- --------- --------- --------- ---------- --------
Net asset value, end of period...... $ 10.19 $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27
======== ========= ========= ========= ========== ========
Total return........................ (1.87)%(2) 3.72% 9.29% 7.26% 4.20% 7.45%(2)
Ratios/supplemental data:
Net assets, end of period
(000's)................. $178,270 $187,725 $ 142,107 $103,104 $ 81,441 $ 61,369
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 4.43%(3) 4.37% 4.66% 4.94% 5.02% 5.44%(3)
Net investment income
excluding reimbursement/
waiver..................... 4.11%(3) 4.05% 4.32% 4.53% 4.48% 4.56%(3)
Operating expenses
including reimbursement/
waiver..................... 0.80%(3) 0.80% 0.80% 0.76% 0.75% 0.52%(3)
Operating expenses
excluding reimbursement/
waiver..................... 1.12%(3) 1.12% 1.14% 1.17% 1.29% 1.40%(3)
Portfolio turnover rate............. 16.84% 19.10% 16.81% 4.28% 20.41% 35.56%
</TABLE>
----------------------------------
* The Fund commenced operations on August 1, 1994 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On _________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to
the reorganization, the Predecessor Fund offered and sold one class of
shares. In connection with the reorganization, shareholders of the
Predecessor Fund exchanged their shares for Trust Shares and BKB Shares
of the Fund. Shareholders of the Predecessor Fund who purchased their
shares through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received Trust Shares of the Fund.
(1) Period from commencement of operations.
(2) Not annualized.
(3) Annualized.
GALAXY TRUST SHARES 45
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
six month
period ended
November 30,
(unaudited) For the year ended May 31,
------------- ------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.39 $10.42 $10.01 $9.78 $9.90 $9.81
--------- -------- --------- --------- ----------- -----------
Income from investment
operations:
Net investment income......... 0.23 0.45 0.47 0.47 0.48 0.47
Net realized and unrealized
gain (loss) on investments.... (0.42) (0.03) 0.41 0.23 (0.12) 0.09
--------- -------- --------- --------- ----------- -----------
Total from investment
operations....................... (0.19) 0.42 0.88 0.70 0.36 0.56
--------- -------- --------- --------- ----------- -----------
Less dividends:
Dividends from net
investment income.......... (0.23) (0.45) (0.47) (0.47) (0.48) (0.47)
Dividends from net
realized capital gains..... -- -- -- -- -- --
--------- -------- --------- --------- ----------- -----------
Total dividends..................... (0.23) (0.45) (0.47) (0.47) (0.48) (0.47)
--------- -------- --------- --------- ----------- -----------
Net increase (decrease) in net
asset value...................... (0.42) (0.03) 0.41 0.23 (0.12) 0.09
--------- -------- --------- --------- ----------- -----------
Net asset value, end of period...... $ 9.97 $ 10.39 $ 10.42 $ 10.01 $ 9.78 $ 9.90
========= ======== ========= ========= =========== ===========
Total return........................ (1.88)%(1) 4.10% 8.91% 7.30% 3.64% 6.00%
Ratios/supplemental data:
Net assets, end of period
(000's)................. $ 252,068 $267,871 $ 206,137 $ 147,459 $ 106,619 $ 82,058
Ratios to average net assets:
Net investment income
including reimbursement/
waiver..................... 4.45%(2) 4.32% 4.54% 4.74% 4.73% 4.93%
Net investment income
excluding reimbursement/
waiver..................... 4.13%(2) 4.00% 4.20% 4.35% 4.25% 4.38%
Operating expenses
including reimbursement/
waiver..................... 0.80%(2) 0.80% 0.80% 0.79% 0.80% 0.80%
Operating expenses
excluding reimbursement/
waiver..................... 1.12%(2) 1.12% 1.14% 1.18% 1.28% 1.35%
Portfolio turnover rate............. 0.82% 9.32% 6.45% 9.47% 47.00% 34.59%
</TABLE>
--------------------------------------
* The Fund commenced operations on June 14,1993 as a separate portfolio (the
"Predecessor Fund") of the Boston 1784 Funds. On ___________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor
Fund exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares through
an investment management, trust, custody, or other agency relationship
with BankBoston, N.A. received Trust Shares of the Fund.
(1) Not annualized.
(2) Annualized.
46 GALAXY TRUST SHARES
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended For the For the
November 30, year ended period ended
(unaudited) May 31 May 31
----------------- ---------- ------------
1999 1999 1998(1)
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period............... $10.12 $10.30 $10.00
------ ------ ------
Income from investment operations:
Net investment income........................ 0.22 0.44 0.43
Net realized and unrealized gain (loss)
on investments.......................... (0.42) (0.04) 0.32
------ ------ ----
Total from investment operations................... (0.20) 0.40 0.75
------ ------ ----
Less dividends:
Dividends from net investment income......... (0.22) (0.44) (0.43)
Dividends from net realized capital gains ... -- (0.14) (0.02)
------ -------- ------
Total dividends.................................... (0.22) (0.58) (0.45)
------ ------ ------
Net increase (decrease) in net asset value......... (0.42) (0.18) 0.30
------ ------ ----
Net asset value, end of period..................... $ 9.70 $10.12 $10.30
====== ====== ======
Total return 2.03%(2) 3.88% 7.63%(2)
Ratios/supplemental data:
Net assets, end of period (000's)............ $68,864 $68,796 $51,793
Ratios to average net assets:
Net investment income including
reimbursement/waiver ................... 4.37%(3) 4.25% 4.59%(3)
Net investment income including
reimbursement/waiver ................... 4.03%(3) 3.91% 4.20%(3)
Operating expenses including
Reimbursement/waiver.................... 0.80%(3) 0.80% 0.80%(3)
Operating expenses excluding
reimbursement/waiver.................... 1.14%(3) 1.14% 1.19%(3)
Portfolio turnover rate............................ 0.51% 10.88% 21.35%
</TABLE>
----------------------------------
* The Fund commenced operations on June 30, 1997 as a separate portfolio (the
"Predecessor Fund") of the Boston 1784 Funds. On _____________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for shares of the Fund.
(1) Period from commencement of operations.
(2) Not annualized.
(3) Annualized.
GALAXY TRUST SHARES 47
<PAGE>
GALAXY GROWTH FUND II*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
six month
period ended For the period
November 30, ended
(unaudited) For the year ended May 31,
------------- ----------------------------------- --------------
1999 1999 1998 1997 1996(1)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.................. $ 12.06 $ 12.93 $ 12.20 $ 11.27 $ 10.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................ (0.02) (0.08) (0.05) 0.02 0.02
Net realized and unrealized gain
(loss) on investments............ 5.26 (0.41) 1.59 0.96 1.25
-------- -------- -------- -------- --------
Total from investment operations.......... 5.24 (0.49) 1.54 0.98 1.27
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... -- -- -- (0.05) (0.00)
Dividends from net realized capital
gains............................ (1.20) (0.38) (0.81) (0.00) (0.00)
-------- -------- -------- -------- --------
Total dividends........................... (1.20) (0.38) (0.81) (0.05) (0.00)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value............................ 4.04 (0.87) 0.73 0.93 1.27
-------- -------- -------- -------- --------
Net asset value, end of period............ $ 16.10 $ 12.06 $ 12.93 $ 12.20 $ 11.27
======== ======== ======== ======== ========
Total return.............................. 43.20%(2) (3.54)% 12.64% 8.77% 12.70%(2)
Ratios/supplemental data:
Net assets, end of period (000's).... $249,396 $185,476 $257,550 $261,487 $ 46,026
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. (0.43)%(3) (0.39)% (0.35)% 0.17% 1.75%(3)
Net investment income excluding
reimbursement/waiver............. (0.68)%(3) (0.64)% (0.60)% (0.21)% 0.22%(3)
Operating expenses including
reimbursement/waiver............. 0.90%(3) 0.93% 0.91% 0.77% 0.20%(3)
Operating expenses excluding
reimbursement/waiver............. 1.15%(3) 1.18% 1.16% 1.15% 1.73%(3)
Portfolio turnover rate................... 45.05% 61.02% 48.60% 57.46% 0.00%
</TABLE>
------------------------------
* The Fund commenced operations on March 28, 1996 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On __________ 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares through an
investment management, trust, custody, or other agency relationship with
BankBoston, N.A. received Trust Shares of the Fund.
(1) Period from commencement of operations.
(2) Not annualized.
(3) Annualized.
48 GALAXY TRUST SHARES
<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 will contain more information about each
Fund and a discussion about the market conditions and investment strategies that
had a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
PROTRBKB 46141 (6/00) PKG50
<PAGE>
The Galaxy Fund
Prospectus
June 1, 2000
Galaxy Intermediate Tax-Exempt Bond Fund
Galaxy Connecticut Intermediate Municipal Bond Fund
Galaxy Massachusetts Intermediate Municipal Bond Fund
Galaxy Growth Fund II
BKB Shares
Galaxy BKB Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Funds or determined if this
prospectus is accurate or complete. Anyone who tells you otherwise is committing
a crime.
[LOGO] GALAXY
FUNDS
<PAGE>
Contents
Risk/return summary .........................................................1
Introduction .......................................................1
Galaxy Intermediate Tax-Exempt Bond Fund ...........................2
Galaxy Connecticut Intermediate Municipal Bond Fund ................6
Galaxy Massachusetts Intermediate Municipal Bond Fund .............11
Galaxy Growth Fund II .............................................15
Additional information about risk .................................19
Investor guidelines ...............................................20
Fund management ............................................................21
How to invest in the Funds .................................................22
How sales charges work ............................................22
Buying, selling and exchanging BKB Shares .........................24
How to buy BKB Shares .....................................25
How to sell BKB Shares ....................................25
Exchange privilege ........................................26
Other transaction policies ................................26
Dividends, distributions and taxes .........................................28
Galaxy investor programs ...................................................30
Retirement plans ...........................................................30
Other programs .............................................................30
How to reach Galaxy ........................................................31
Financial highlights .......................................................32
<PAGE>
RISK/RETURN SUMMARY
INTRODUCTION
THIS PROSPECTUS describes the BKB Shares of the Galaxy Intermediate
Tax-Exempt Bond Fund, Galaxy Connecticut Intermediate Municipal Bond Fund,
Galaxy Massachusetts Intermediate Municipal Bond Fund and Galaxy Growth Fund
II. Each Fund commenced operations as a separate portfolio (the "Predecessor
Fund") of the Boston 1784 Funds. On _____, 2000, each Predecessor Fund was
recognized as a new portfolio of Galaxy. BKB Shares are offered through this
prospectus without a sales charge (sometimes called a front-end load) only to
those shareholders of the Boston 1784 Funds who are not eligible to receive
Trust Shares of their corresponding Galaxy Funds at the time the Boston 1784
Funds are reorganized into Galaxy. BKB Shares of each Fund will convert into
Retail A Shares of the same Fund on the first anniversary of the closing of
the reorganization of the Boston 1784 Funds into Galaxy, provided that prior
thereto the Board of Trustees of Galaxy has determined that such conversion
is in the best interest of the holders of BKB Shares. Because of this
conversion feature, some information is provided in this prospectus for
Retail A Shares of the Funds. Retail A Shares of the Funds are offered
through a separate prospectus available from Galaxy by calling the phone
number on the back cover of this prospectus. Prior to the date of this
prospectus, the Funds had not offered BKB Shares.
On the following pages, you'll find important information about each Fund,
including:
- the Fund's investment objective (sometimes called the Fund's goal) and the
main investment strategies used by the Fund's investment adviser in trying
to achieve that objective
- the main risks associated with an investment in the Fund
- the past performance of the Fund measured on both a year-by-year and
long-term basis
- the fees and expenses that you will pay as an investor in the Fund.
THE FUNDS' INVESTMENT ADVISER
Fleet Investment Advisors Inc., which is referred to in this prospectus as the
Adviser, is the investment adviser for all of these Funds. The Adviser, an
indirect wholly-owned subsidiary of FleetBoston Financial Corporation, was
established in 1984 and has its main office at 75 State Street, Boston,
Massachusetts 02109. The Adviser also provides investment management and
advisory services to individual and institutional clients and manages the other
Galaxy investment portfolios. As of December 31, 1999, the Adviser managed over
$68 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 ANY OF THE FUNDS.
GALAXY BKB SHARES 1
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income, exempt from federal
income tax, consistent with preservation of capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in a diversified portfolio of 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 circumstances, at least 80% of the Fund's net
assets are invested in municipal securities or in mutual funds that invest in
municipal securities. The Fund may also invest up to 20% of its net assets in
debt securities that pay interest that is not exempt from federal tax, such as
U.S. Government obligations, corporate bonds, money market instruments,
including commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various geographic regions, issuers and
industry sectors.
Nearly all of the Fund's investments will be of investment grade quality. These
are securities which have one of the top four ratings assigned by Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are
unrated securities determined by the Adviser to be of comparable quality. The
Adviser expects, however, that most of the securities purchased by the Fund will
have one of the top three ratings assigned by S&P or 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 investment
grade. If that happens, the Fund doesn't have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Fund. However, the Fund will sell promptly any
securities that are not rated investment grade by either S&P or Moody's if the
securities exceed 5% of the Fund's net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five 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.
[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.
[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.
2 GALAXY BKB SHARES
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
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 carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates are
falling, the prices of debt securities tend to rise. Generally, the longer
the time until maturity, the more sensitive the price of a debt security is
to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make payments
of principal and interest than is the case with higher-rated securities. The
ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some
municipal obligations are payable only from limited revenue sources or by
private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- HEDGING - The Fund may invest in derivatives, such as futures and options on
futures, to hedge against market risk. There is 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. These instruments may be leveraged
so that small changes may produce disproportionate losses to the Fund.
- 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.
[Sidenote:]
TYPES OF MUNICIPAL SECURITIES
GENERAL OBLIGATION SECURITIES are secured by the issuer's full faith, credit and
taxing power. REVENUE OBLIGATION SECURITIES are usually payable only from
revenues derived from specific facilities or revenue sources. PRIVATE ACTIVITY
BONDS are usually revenue obligations since they are typically payable by the
private user of the facilities financed by the bonds.
GALAXY BKB SHARES 3
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and table below show how the Fund has performed in the past and
give some indication of the risk of investing in the Fund. Both assume that all
dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On ______, 2000 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 Trust Shares and BKB Shares of the Fund. Shareholders of the
Predecessor Fund who purchased their shares other than through an investment
management, trust, custody, or other agency relationship with BankBoston, N.A.
received BKB Shares of the Fund. The returns shown below are for the Predecessor
Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATIONS OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-3.02% 14.31% 4.20% 9.10% 6.41% -2.95%
------------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.82%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1 year 5 years Since inception
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -2.95% 6.06% 5.11% (6/14/93)
---------------------------------------------------------------------------------------
Lehman Brothers
7-Year Municipal
Bond Index -0.14% 6.36% 5.28% (since 5/31/93)
---------------------------------------------------------------------------------------
</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.
[Sidenote:]
Best quarter: 5.39% for the quarter ending March 31, 1995
Worst quarter: -4.20% for the quarter ending March 31, 1994
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
4 GALAXY BKB SHARES
<PAGE>
GALAXY INTERMEDIATE 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. It is expected that your BKB Shares will convert into
Retail A Shares of the Fund on the first anniversary of the closing of the
reorganization of the Boston 1784 Funds into Galaxy, provided that prior thereto
the Board of Trustees of Galaxy has determined that such conversion is in the
best interest of the holders of BKB Shares. Because of this conversion feature,
information is also provided as to the fees and expenses you may pay when you
buy and hold Retail A Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
---------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a
shown as a % of the % of the offering price
offering price or sale price, whichever
is less
---------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
---------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
---------------------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM THE FUND'S ASSETS)
---------------------------------------------------------------------------------------------
Distribution and Total Fund
Management and service Other operating
Fees (12b-1) fees expenses expenses
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None 0.30%(3) 1.05%(3,4)
---------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None 0.30% 1.05%(3)
---------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds-How sales charges
work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds -- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.63%. Affiliates of the Adviser are waiving a portion of
the shareholder servicing fees (that are included in Other expenses) with
respect to BKB Shares so that Other expenses for BKB Shares are expected to be
0.17%. Total Fund operating expenses after these waivers are expected to be
0.80% for BKB Shares and 0.93% for Retail A Shares. These fee waivers may be
revised or discontinued at any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for BKB Shares of the Fund do not exceed 0.80% until the
later of one year from the date of the reorganization or such time as the Board
of Trustees of Galaxy votes on the conversion of BKB Shares into Retail A
Shares.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- you invest $10,000 for the periods shown - you reinvest all dividends and
distributions in the Fund
- you sell all your shares at the end of the periods shown
- your investment has a 5% return each year
- your BKB Shares convert into Retail A Shares after one year
- the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $107 N/A N/A N/A
---------------------------------------------------------------------------------
Retail A Shares $478 $697 $933 $1,609
---------------------------------------------------------------------------------
</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 BKB SHARES 5
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income exempt from both federal
and Connecticut personal income tax, with a secondary goal of preserving
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Connecticut municipal securities. Connecticut municipal securities 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 net assets in taxable debt securities, such as U.S. Government
obligations, corporate bonds, money market instruments, including commercial
paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. The Adviser expects, however, that most of the securities
purchased by the Fund will have one of the top three ratings assigned by S&P
or 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 investment grade. If that happens, the Fund
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund. However, the Fund will sell promptly any securities that are not rated
investment grade by S&P or Moody's if the securities exceed 5% of the Fund's
net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances, the Fund's average weighted maturity will
be between five and ten years.
6 GALAXY BKB SHARES
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
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 carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates are
falling, the prices of debt securities tend to rise. Generally, the longer
the time until maturity, the more sensitive the price of a debt security is
to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make payments
of principal and interest than is the case with higher-rated securities. The
ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some
municipal obligations are payable only from limited revenue sources or by
private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers. As
a result, a change in the value of any one investment held by the Fund may
affect the overall value of the Fund more than it would affect a diversified
fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in 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.
GALAXY BKB SHARES 7
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
- HEDGING - The Fund may invest in derivatives, such as futures and options on
futures, to hedge against market risk. There is 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. These instruments may be leveraged
so that small changes may produce disproportionate losses to the Fund.
- 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 BKB SHARES
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on August 1, 1994 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On ________, 2000 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 Trust Shares and BKB Shares of the Fund. Shareholders of the
Predecessor Fund who purchased their shares other than through an investment
management, trust, custody, or other agency relationship with BankBoston, N.A.
received BKB Shares of the Fund.
The returns shown below are for the Predecessor Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATIONS OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
--------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------
<S> <C> <C> <C> <C>
14.66% 3.63% 8.53% 6.67% -2.81%
--------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.66%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1 year 5 years Since inception
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -2.81% 5.98% 5.32% (8/1/94)
---------------------------------------------------------------------------------------
Lehman Brothers
7-Year Municipal
Bond Index -0.14% 6.36% 5.57% (since 7/31/94)
---------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 5.91% for the quarter ending March 31, 1995
Worst quarter: -2.28% for the quarter ending June 30, 1999
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
GALAXY BKB SHARES 9
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE 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. It is expected that your BKB Shares will convert into
Retail A Shares of the Fund on the first anniversary of the closing of the
reorganization of the Boston 1784 Funds into Galaxy, provided that prior thereto
the Board of Trustees of Galaxy has determined that such conversion is in the
best interest of the holders of BKB Shares. Because of this conversion feature,
information is also provided as to the fees and expenses you may pay when you
buy and hold Retail A Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
--------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a
shown as a % of the % of the offering price
offering price or sale price, whichever
is less
--------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
--------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
---------------------------------------------------------------------------------------------
Distribution and Total Fund
Management and service Other operating
Fees (12b-1) fees expenses expenses
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None 0.32%(3) 1.07%(3,4)
---------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None 0.32% 1.07%(3)
---------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the
Funds - How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.63%. Affiliates of the Adviser are waiving a portion of
the shareholder servicing fees (that are included in Other expenses) with
respect to BKB Shares so that Other expenses for BKB Shares are expected to be
0.17%. Total Fund operating expenses after these waivers are expected to be
0.80% for BKB Shares and 0.95% for Retail A Shares. These fee waivers may be
revised or discontinued at any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for BKB Shares of the Fund do not exceed 0.80% until the
later of one year from the date of the reorganization or such time as the
Board of Trustees of Galaxy votes on the conversion of BKB Shares into
Retail A Shares.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- you invest $10,000 for the periods shown
- you reinvest all dividends and distributions in the Fund
- you sell all your shares at the end of the periods shown
- your investment has a 5% return each year
- your BKB Shares convert to Retail A Shares after one year
- the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $109 N/A N/A N/A
---------------------------------------------------------------------------------
Retail A Shares $480 $703 $943 $1,632
---------------------------------------------------------------------------------
</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 BKB SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with current income, exempt from both
federal and Massachusetts personal income tax, consistent with preservation of
capital.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily 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. The Fund
normally invests at least 80% of its net assets in municipal securities or in
mutual funds that invest in municipal securities, and at least 65% of its net
assets in Massachusetts municipal securities. Massachusetts municipal securities
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 net assets in taxable obligations, such as U.S.
Government obligations, corporate bonds, money market instruments, including
commercial paper and bank obligations, 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 may, from time to time, invest as a hedging strategy in a limited
amount of futures contracts or options on futures contracts. The Fund may only
use futures contracts and options on futures contracts, commonly referred to as
derivatives, in an effort to offset unfavorable changes in the value of
securities held by the Fund for investment purposes.
In selecting portfolio securities for the Fund, the Adviser evaluates the
suitability of available bonds according to such factors as creditworthiness,
maturity, liquidity and interest rates. It also determines the appropriate
allocation of the Fund's assets among various issuers and industry sectors.
Nearly all of the Fund's investments will be of investment grade quality.
These are securities which have one of the top four ratings assigned by
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc.
(Moody's), or are unrated securities determined by the Adviser to be of
comparable quality. The Adviser expects, however, that most of the securities
purchased by the Fund will have one of the top three ratings assigned by S&P
or 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 investment grade. If that happens, the Fund
doesn't have to sell the security unless the Adviser determines that under
the circumstances the security is no longer an appropriate investment for the
Fund. However, the Fund will sell promptly any securities that are not rated
investment grade by S&P or Moody's if the securities exceed 5% of the Fund's
net assets.
The Fund is permitted to invest in municipal securities with any maturity.
However, under normal circumstances the Fund's average weighted maturity will be
between five 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.
GALAXY BKB SHARES 11
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
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 carries the following main risks:
- INTEREST RATE RISK - The prices of debt securities, including municipal
securities, tend to move in the opposite direction to interest rates. When
rates are rising, the prices of debt securities tend to fall. When rates are
falling, the prices of debt securities tend to rise. Generally, the longer
the time until maturity, the more sensitive the price of a debt security is
to interest rate changes.
- CREDIT RISK - The value of debt securities, including municipal securities,
also depends on the ability of issuers to make principal and interest
payments. If an issuer can't meet its payment obligations or if its credit
rating is lowered, the value of its debt securities will fall. Debt
securities which have the lowest of the top four ratings assigned by S&P or
Moody's have speculative characteristics. Changes in the economy are more
likely to affect the ability of issuers of these securities to make payments
of principal and interest than is the case with higher-rated securities. The
ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some
municipal obligations are payable only from limited revenue sources or by
private entities.
- PREPAYMENT/EXTENSION RISK - Changes in interest rates may cause certain
municipal securities held by the Fund to be paid off much sooner or later
than expected, which could adversely affect the Fund's value. In the event
that a security is paid off sooner than expected because of a decline in
interest rates, the Fund may be unable to recoup all of its initial
investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise
in interest rates, the value of the obligation will decrease and the Fund
may suffer from the inability to invest in higher-yielding securities.
- LACK OF DIVERSIFICATION - The Fund is not diversified, which means that it
can invest a large percentage of its assets in a small number of issuers. As
a result, a change in the value of any one investment held by the Fund may
affect the overall value of the Fund more than it would affect a diversified
fund which holds more investments.
- SINGLE STATE RISK - Because the Fund invests primarily in 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.
- HEDGING - The Fund may invest in derivatives, such as futures and options on
futures, to hedge against market risk. There is 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. These instruments may be leveraged
so that small changes may produce disproportionate losses to the Fund.
- 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.
12 GALAXY BKB SHARES
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on June 14, 1993 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On ________, 2000 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 Trust Shares and BKB Shares of the Fund. Shareholders of the
Predecessor Fund who purchased their shares other than through an investment
management, trust, custody, or other agency relationship with BankBoston, N.A.
received BKB Shares of the Fund. The returns shown below are for the Predecessor
Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATIONS OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
-------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-5.45% 13.73% 3.32% 8.89% 5.91% -2.16%
-------------------------------------------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
2.59%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1 year 5 years Since inception
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Predecessor Fund -2.16% 5.80% 4.58% (6/14/93)
---------------------------------------------------------------------------------------
Lehman Brothers
7-Year Municipal
Bond Index -0.14% 6.36% 5.28% (since 5/31/93)
---------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 5.45% for the quarter ending March 31, 1995
Worst quarter: -5.15% for the quarter ending March 31, 1994
[Sidenote:]
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index which
tracks the performance of municipal bonds with remaining maturities of 7 years
or less.
GALAXY BKB SHARES 13
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE 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. It is expected that BKB Shares will convert into Retail
A Shares of the Fund on the first anniversary of the closing of the
reorganization of the Boston 1784 Funds into Galaxy, provided that prior thereto
the Board of Trustees of Galaxy has determined that such conversion is in the
best interest of the holders of BKB Shares. Because of this conversion feature,
information is also provided as to the fees and expenses you may pay when you
buy and hold Retail A Shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees (fees paid directly from your investment)
----------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a
shown as a % of the % of the offering price
offering price or sale price, whichever
is less
----------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
----------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
---------------------------------------------------------------------------------------------
Distribution and Total Fund
Management and service Other operating
Fees (12b-1) fees expenses expenses
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75%(3) None 0.32%(3) 1.07%(3),(4)
---------------------------------------------------------------------------------------------
Retail A Shares 0.75%(3) None 0.32% 1.07%(3)
---------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) The Adviser is waiving a portion of the Management fees so that such fees
are expected to be 0.63%. Affiliates of the Adviser are waiving a portion of
the shareholder servicing fees (that are included in Other expenses) with
respect to BKB Shares so that Other expenses for BKB Shares are expected to be
0.17%. Total Fund operating expenses after these waivers are expected to be
0.80% for BKB Shares and 0.95% for Retail A Shares. These fee waivers may be
revised or discontinued at any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for BKB Shares of the Fund do not exceed 0.80% until the
later of one year from the date of the reorganization or such time as the Board
of Trustees of Galaxy votes on the conversion of BKB Shares into Retail A
Shares.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- you invest $10,000 for the periods shown
- you reinvest all dividends and distributions in the Fund
- you sell all your shares at the end of the periods shown
- your investment has a 5% return each year
- your BKB Shares convert into Retail A Shares after one year
- the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $109 N/A N/A N/A
---------------------------------------------------------------------------------
Retail A Shares $480 $703 $943 $1,632
---------------------------------------------------------------------------------
</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.
14 GALAXY BKB SHARES
<PAGE>
GALAXY GROWTH FUND II
THE FUND'S INVESTMENT OBJECTIVE
The Fund seeks to provide investors with capital appreciation. Dividend income,
if any, is incidental to capital appreciation.
THE FUND'S MAIN INVESTMENT STRATEGIES
The Fund invests primarily in common stock (including depositary receipts) of
U.S. and foreign companies which the Adviser believes have above-average growth
potential. The Fund normally invests 80% to 90% or more of its total assets in
these securities, although the Fund may invest up to 35% of its total assets in
other securities, such as convertible and non-convertible debt securities,
preferred stock, warrants and money market instruments.
The Fund principally invests in U.S. companies with market capitalizations of at
least $250 million, although the Fund also may invest in companies with smaller
capitalizations. The Fund may invest up to 25% of its total assets in the
securities of foreign companies, including companies in developing countries.
While some of the Fund's investments may pay dividends, current income is not a
consideration when selecting investments.
In selecting securities for the Fund, the Adviser uses a "bottom-up" approach.
It looks for companies that it believes are in dynamic high-growth sectors of
the world economy and that are thought to have dominant or strong competitive
positions within their sectors. The Adviser also looks for companies thought to
have quality management and that are expected to have strong earnings growth
potential.
The Fund may engage in foreign currency hedging transactions in an attempt to
minimize the effects of currency fluctuations on the Fund.
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 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.
- 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.
[Sidenote:]
GROWTH STOCKS
Growth stocks offer strong revenue and earnings potential, and accompanying
capital growth, with generally less dividend income than value stocks.
[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.
GALAXY BKB SHARES 15
<PAGE>
GALAXY GROWTH FUND II
- 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.
- HEDGING - The Fund may engage in foreign currency transactions to hedge
against 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. These instruments may
be leveraged so that small changes may produce disproportionate losses to
the Fund.
- 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.
16 GALAXY BKB SHARES
<PAGE>
GALAXY GROWTH FUND II
HOW THE FUND HAS PERFORMED
The bar chart and the table below show how the Fund has performed in the past
and give some indication of the risk of investing in the Fund. Both assume that
all dividends and distributions are reinvested in the Fund. How the Fund has
performed in the past doesn't necessarily show how it will perform in the
future.
The Fund began operations on March 28, 1996 as a separate portfolio (the
Predecessor Fund) of the Boston 1784 Funds. On ________, 2000, 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 Trust Shares and BKB Shares of the Fund. Shareholders of the
Predecessor Fund who purchased their shares other than through an investment
management, trust, custody, or other agency relationship with BankBoston, N.A.
received BKB Shares of the Fund. The returns shown below are for the Predecessor
Fund.
YEAR-BY-YEAR TOTAL RETURNS - CALENDAR YEARS
The bar chart shows how the performance of the Predecessor Fund has varied from
year to year.
[EDGAR REPRESENTATIONS OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
----------------------------
1997 1998 1999
----------------------------
<S> <C> <C>
13.92% 1.36% 70.42%
----------------------------
</TABLE>
The Predecessor Fund's total return for the quarter ended March 31, 2000 was
15.22%.
AVERAGE ANNUAL TOTAL RETURNS
The table shows the Predecessor Fund's average annual total returns for the
periods ended December 31, 1999, as compared to a broad-based market index.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
1 year Since inception
---------------------------------------------------------------------------------------
<S> <C> <C>
Predecessor Fund 70.42% 24.95% (3/28/96)
---------------------------------------------------------------------------------------
Russell 2000 Index 21.26% 13.41% (since 3/31/96)
---------------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
Best quarter: 53.66% for the quarter ending December 31, 1999
Worst quarter: -22.74% for the quarter ending September 30, 1998
[Sidenote:]
The Russell 2000 Index is an unmanaged index which tracks the performance of the
2000 smallest of the 3000 largest U.S. companies, based on market
capitalization. Companies included in the Russell 2000 Index have market
capitalizations that currently range between $30 million and $1.4 billion.
GALAXY BKB SHARES 17
<PAGE>
GALAXY GROWTH FUND II
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. It is expected that BKB Shares will convert into Retail
A Shares of the Fund on the first anniversary of the closing of the
reorganization of the Boston 1784 Funds into Galaxy, provided that prior thereto
the Board of Trustees of Galaxy has determined that such conversion is in the
best interest of the holders of BKB Shares. Because of this conversion feature,
information is also provided as to the fees and expenses you may pay when you
buy and hold Retail A Shares of the Fund.
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Maximum sales charge Maximum deferred sales
(load) on purchases charge (load) shown as a
shown as a % of the % of the offering price
offering price or sale price, whichever
is less
---------------------------------------------------------------------------------------------
<S> <C> <C>
BKB Shares None None
---------------------------------------------------------------------------------------------
Retail A Shares 3.75%(1) None(2)
---------------------------------------------------------------------------------------------
</TABLE>
Annual Fund operating expenses (expenses deducted from the Fund's assets)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Distribution and Total Fund
Management and service Other operating
Fees (12b-1) fees expenses expenses
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares 0.75% None 0.49%(3) 1.24%(3,4)
---------------------------------------------------------------------------------------------
Retail A Shares 0.75% None 0.49% 1.24%
---------------------------------------------------------------------------------------------
</TABLE>
(1) There will be no sales charge imposed on the conversion of BKB Shares into
Retail A Shares. Reduced sales charges may be available for certain other
investors in Retail A Shares. See "How to invest in the Funds How sales
charges work."
(2) Except for investments of $500,000 or more. See "How to invest in the Funds
- How sales charges work."
(3) Affiliates of the Adviser are waiving a portion of the shareholder servicing
fees (that are included in Other expenses) with respect to BKB Shares so that
Other expenses for BKB Shares are expected to be 0.19%. Total Fund operating
expenses after this waiver are expected to be 0.94% for BKB Shares. This fee
waiver may be revised or discontinued at any time.
(4) The Adviser and/or its affiliates have agreed to waive fees and reimburse
expenses in such amounts as are necessary to ensure that the Total Fund
operating expenses for BKB Shares of the Fund do not exceed 0.94% until the
later of one year from the date of the reorganization or such time as the Board
of Trustees of Galaxy votes on the conversion of BKB Shares into Retail A
Shares.
EXAMPLE
This example helps you compare the cost of investing in the Fund with the cost
of investing in other mutual funds. The example assumes:
- you invest $10,000 for the periods shown
- you reinvest all dividends and distributions in the Fund
- you sell all your shares at the end of the periods shown
- your investment has a 5% return each year
- your BKB Shares convert into Retail A Shares after one year
- the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower depending on the amount you
invest and the Fund's actual rate of return, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BKB Shares $126 N/A N/A N/A
---------------------------------------------------------------------------------
Retail A Shares $497 $754 $1,030 $1,819
---------------------------------------------------------------------------------
</TABLE>
[Sidenote:]
PORTFOLIO MANAGER
The Fund's portfolio managers are Theodore E. Ober and Eugene D. Takach. They
are primarily responsible for the day-to-day management of the Fund's investment
portfolio. Mr. Ober, who has over 11 years of experience in investment
management and research analysis, has been a Research Analyst, Fund Manager and
Senior Fund Manager with the Adviser and its affiliated organizations since
1987. Mr. Takach, who has over 30 years of experience in investment management,
research analysis and securities trading, has been a portfolio manager with the
Adviser and its affiliated organizations since 1971. Mr. Ober and Mr. Takach
have co-managed the Predecessor Fund since it began operations.
18 GALAXY BKB SHARES
<PAGE>
ADDITIONAL INFORMATION ABOUT RISK
The main risks associated with an investment in each of the 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) and taxable investments, such as money market
instruments and debt securities issued or guaranteed by the U.S. Government or
its agencies. These strategies could prevent a Fund from achieving its
investment objective and could reduce the Fund's return and affect its
performance during a market upswing.
OTHER TYPES OF INVESTMENTS
This prospectus describes each Fund's main investment strategies and the
particular types of securities in which each Fund mainly invests. Each Fund may,
from time to time, pursue other investment strategies and make other types of
investments in support of its overall investment goal. These supplemental
investment strategies, which are not considered to be main investment strategies
of the Funds - and the risks involved - are described in detail in the Statement
of Additional Information (SAI) which is referred to on the back cover of this
prospectus.
YEAR 2000 RISKS
Over the past several years, the Adviser and the Funds' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. The Adviser
and the Funds' other major service providers are continuing to monitor the Year
2000 or Y2K problem and there can be no assurances that there will be no adverse
impact to the Funds as a result of future computer-related Y2K difficulties.
GALAXY BKB SHARES 19
<PAGE>
INVESTOR GUIDELINES
The table below provides information as to which type of investor might want to
invest in each of the 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.
<TABLE>
<CAPTION>
<S><C>
Galaxy Fund May be best suited for investors who...
-------------------------------------------------------------------------------------------------------------
Galaxy Intermediate Tax-Exempt Bond Fund - are seeking current income that is exempt
from federal income tax
- are seeking a higher yield than is available
from shorter-term tax-exempt securities or
money market funds
-------------------------------------------------------------------------------------------------------------
Galaxy Connecticut Intermediate Municipal Bond Fund - reside in Connecticut and are seeking
current income that is exempt from federal
income tax and Connecticut personal income tax
- are seeking a higher yield than is
available from shorter-term tax-exempt
securities or money market funds
-------------------------------------------------------------------------------------------------------------
Galaxy Massachusetts Intermediate Municipal Bond Fund - reside in Massachusetts and are seeking
current income that is exempt from federal
income tax and Massachusetts personal income
tax
- are seeking a higher yield than is
available from shorter-term tax-exempt
securities or money market funds
-------------------------------------------------------------------------------------------------------------
Galaxy Growth Fund II - are seeking long-term growth
- are able to tolerate the additional risks
of investing in smaller companies
- are not seeking income
-------------------------------------------------------------------------------------------------------------
</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.
20 GALAXY BKB SHARES
<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. Prior to the
reorganization, BankBoston N.A. ("BankBoston") served as the investment adviser
to each of the Predecessor Funds. BankBoston is an indirect wholly-owned
subsidiary of FleetBoston Financial Corporation and an affiliate of the Adviser.
The management fees paid to BankBoston by each Predecessor Fund during the
fiscal year ended May 31, 1999 are set forth below.
<TABLE>
<CAPTION>
Management fee
as a % of
Fund average net assets
-----------------------------------------------------------------------
<S> <C>
Intermediate Tax-Exempt Bond 0.68%
-----------------------------------------------------------------------
Connecticut Intermediate Municipal Bond 0.67%
-----------------------------------------------------------------------
Massachusetts Intermediate Municipal Bond 0.67%
-----------------------------------------------------------------------
Growth II 0.74%
-----------------------------------------------------------------------
</TABLE>
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 they believe that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.
GALAXY BKB SHARES 21
<PAGE>
HOW TO INVEST IN THE FUNDS
Each of the Funds offers BKB Shares only to those shareholders of the Boston
1784 Funds who are not eligible to receive Trust Shares of their corresponding
Galaxy Fund at the time the Boston 1784 Funds are reorganized into Galaxy. It is
expected that BKB Shares of each Fund will convert into Retail A Shares of the
same Fund on the first anniversary of the closing of the reorganization of the
Boston 1784 Funds into Galaxy, provided that prior thereto Galaxy's Board of
Trustees has determined that such conversion is in the best interest of the
holders of BKB Shares. Because of this conversion feature, some information is
provided in this prospectus for Retail A Shares of the Fund. The Funds offer
Retail A Shares through a separate prospectus.
HOW SALES CHARGES WORK
There is no sales charge (sometimes called a front-end load) when you acquire
BKB Shares in connection with the reorganization of the Boston 1784 Funds into
Galaxy, when you buy additional BKB Shares or when your BKB Shares convert into
Retail A Shares. Retail A Shares of each Fund are sold with a sales charge.
However, holders of BKB Shares may purchase Retail A Shares of any of the Galaxy
Funds without incurring the sales charge otherwise applicable on the purchase of
Retail A Shares of certain of the Galaxy Funds. When these Retail A Shares are
purchased, you must tell your investment professional or Galaxy's distributor
that you qualify for a sales load waiver.
RETAIL A SHARES
The table below shows the sales charge applicable to Retail A Shares of the
Funds. The offering price for Retail A Shares is the NAV of the shares
purchased, plus any applicable sales charge.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Total sales charge
-----------------------------------------------------------------------------------------------------
Amount of your investment As a % of the offering As a % of your
price 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 a shareholder sells the shares within one year
after buying them, a contingent deferred sales charge (sometimes called a
back-end load or CDSC) of 1% of the offering price or 1% of the net asset value
of the shares, whichever is less, will be charged unless the shares were sold
because of the death or disability of the shareholder. However, Galaxy will
waive the 1% CDSC the first time you sell shares during this one-year period. If
you reinvest the proceeds of this sale within one year, the waiver of the CDSC
won't apply to any sale of shares purchased with such reinvested proceeds.
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
[Sidenote:]
NET ASSET VALUE
The price you pay for your shares is based on the net asset value per share
(NAV). It's the value of a Fund's assets attributable to BKB Shares or Retail A
Shares, minus the value of the Fund's liabilities attributable to BKB Shares or
Retail A Shares, divided by the number of BKB Shares or Retail A Shares held by
investors.
[Sidenote:]
SALES CHARGE WAIVERS/DISCOUNT PLANS
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 or that you want to take
advantage of any of the discount plans. See the SAI for additional
requirements that apply to the discount plans. To contact Galaxy's distributor,
call 1-877-BUY- GALAXY (1-877-289-4252).
22 GALAXY BKB SHARES
<PAGE>
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 were a Galaxy shareholder before December 1, 1995.
- You buy shares for a 401(k) or SIMPLE IRA retirement account (applicable
only for the Growth Fund II).
- You buy shares for any retirement account provided that you held Retail A
Shares in a retirement account prior to January 1, 1999 (applicable only
for the Growth Fund II).
- You buy shares for any retirement account and your total cumulative
Retail A Share retirement account balance was $30,000 or more between
January 1, 1999 and June 30, 1999 (applicable only for the Growth Fund II).
- 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 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).
- 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.
- You were a shareholder of the Boston 1784 Funds on the date when the Boston
1784 Funds were reorganized into Galaxy.
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 any 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. Galaxy's administrator will hold in escrow Retail A Shares
equal to 5% of the amount you indicate in the Letter of Intent for payment
of a higher sales charge if you don't purchase the full amount indicated in
the Letter of Intent. See the SAI for more information on this escrow
feature.
- REINVESTMENT PRIVILEGE - You can reinvest some or all of the money that you
receive when selling Retail A Shares of the Funds in Retail A Shares of any
Galaxy Fund within 90 days without paying a sales charge.
- GROUP SALES - If 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.
GALAXY BKB SHARES 23
<PAGE>
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 Intermediate Tax-Exempt
Bond, Connecticut Intermediate Municipal Bond and Massachusetts Intermediate
Municipal Bond Funds do not intend to pay more than 0.15% and the Growth Fund II
does not intend to pay more than 0.30%, respectively, in shareholder service
fees with respect to Retail A Shares during the current fiscal year.
BKB Shares of the Funds can pay shareholder service fees at an annual rate of up
to 0.50% of each Fund's BKB Share assets. The Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond and Massachusetts Intermediate Municipal
Bond Funds do not intend to pay more than 0.15% and the Growth Fund II does not
intend to pay more than 0.30%, respectively, in shareholder service fees with
respect to BKB Shares during the current fiscal year.
CONVERSION OF BKB SHARES INTO RETAIL A SHARES
BKB Shares of a Fund will convert into Retail A Shares of the same Fund on the
first anniversary of the reorganization of the Boston 1784 Funds into Galaxy,
provided that prior thereto the Board of Trustees of Galaxy has determined that
such conversion is in the best interest of the holders of BKB Shares. The
conversion of BKB Shares to Retail A Shares will take place at NAV, so that the
value of the Retail A Shares you receive in the conversion will be the same as
the value of your BKB Shares that were converted.
BUYING, SELLING AND EXCHANGING BKB SHARES
BKB Shares of the Funds are available for purchase only by those shareholders
who received BKB Shares in connection with the reorganization of the Boston 1784
Funds into Galaxy.
You may buy and sell BKB Shares of the Funds on any day that the Funds are open
for business, which is any day that the New York Stock Exchange is open. The New
York Stock Exchange is generally open for trading every Monday through Friday,
except for national holidays.
The price at which you buy shares is the NAV next determined after your order is
accepted. The price at which you sell shares is the NAV next determined, after
receipt of your order in proper form as described below. NAV is determined on
each day the New York Stock Exchange is open for trading as of 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 Funds, 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]:
MINIMUM INVESTMENT AMOUNT
You can make additional investments in your BKB Share account for as little at
$100.
Usually, you must keep at least $250 in your account. If your account falls
below $250 because you sell or exchange shares, Galaxy may redeem your shares
and close your account. Galaxy will give you 60 days' notice in writing before
closing your account.
24 GALAXY BKB SHARES
<PAGE>
HOW TO BUY BKB SHARES
You can buy shares through your financial institution or directly from Galaxy's
distributor by calling 1-877-BUY-GALAXY (1-877-289-4252). A broker or agent who
places orders on your behalf may charge you a separate fee for their services.
BUYING BY MAIL
To make additional investments, send a check made payable to each Fund in which
you want to invest to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include with your check one of the following:
- The detachable form that's included with your Galaxy statement or your
confirmation of a prior transaction
- A letter stating the amount of your investment, the name of the Fund you
want to invest in, and your account number.
If your check is returned because of insufficient funds, Galaxy will cancel your
order.
BUYING BY WIRE
To make an additional investment by wire, send U.S. funds through the Federal
Reserve System to Fleet National Bank as agent for Galaxy's distributor. You
should wire money and registration instructions to:
Fleet National Bank
75 State Street
Boston, MA 02109
ABA #0110-0013-8
DDA #79673-5702
Ref: The Galaxy Fund
(Account number)
(Account registration)
Your financial institution may charge you a fee for sending funds by wire.
CUSTOMERS OF FINANCIAL INSTITUTIONS
If you are a customer of a financial institution such as a bank, savings and
loan association or broker-dealer, including a financial institution affiliated
with the Adviser, you should place your order through your financial
institution. Your financial institution is responsible for sending your order to
Galaxy's distributor and wiring the money to Galaxy's custodian. For details,
please contact your financial institution.
HOW TO SELL BKB SHARES
You can sell your shares in several ways: by mail, by telephone, by wire, or
through your financial institution.
SELLING BY MAIL
Send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
You must include the following:
- The name of the Fund
- The number of shares or the dollar amount you want to sell
- Your account number
- Your Social Security number or tax identification number
- The signatures of each registered owner of the account (the signatures must
match the names on the account registration).
Additional documents may be required for certain types of shareholders, such as
corporations, partnerships, executors, trustees, administrators or guardians.
GALAXY BKB SHARES 25
<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 in writing that you don't want this
privilege. If you have difficulty getting through to Galaxy because of unusual
market conditions, consider selling your shares by mail or wire.
SELLING BY WIRE
Notify Galaxy's distributor by phone or wire that you wish to sell shares and
have the sale proceeds wired to your account at any financial institution in the
U.S. To be eligible to use this privilege, you must notify Galaxy in writing
(with a signature guarantee). Your sale proceeds must be more than $1,000.
The sale proceeds must be paid to the same bank and account you named in your
written instructions.
CUSTOMERS OF FINANCIAL INSTITUTIONS
Please contact your financial institution for information on how to sell your
shares. The financial institution is responsible for sending your order to
Galaxy's distributor and for crediting your account with the proceeds. Galaxy
doesn't charge a fee for wiring sale proceeds to your financial institution, but
your financial institution may charge you a fee.
EXCHANGE PRIVILEGE
Shareholders may exchange BKB Shares of a Fund having a value of at least $100
for BKB Shares of any other Galaxy Fund. Shareholders won't pay a sales charge
for exchanging BKB Shares.
To exchange shares:
- call Galaxy's distributor or use the InvestConnect toll-free voice response
line at 1-877-BUY-GALAXY (1-877-289-4252)
- send your request in writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
- ask your financial institution.
Galaxy doesn't charge any fee for making exchanges but your financial
institution might do so. You are generally limited to three exchanges per year.
Galaxy may change or cancel the exchange privilege with 60 days' advance written
notice to shareholders.
OTHER TRANSACTION POLICIES
If Galaxy doesn't receive full payment for your order to buy shares within three
business days of the order date, Galaxy won't accept your order. Galaxy will
advise you if this happens and return any payment it may eventually receive. You
can only invest in shares of the Funds that are legally available in your state.
Galaxy may refuse any order to buy shares. Galaxy doesn't issue a certificate
when you buy shares but it does keep a record of shares issued to investors.
Galaxy may refuse your order to sell or exchange shares by wire or telephone if
it believes it is advisable to do so. Galaxy or its distributor may change or
cancel the procedures for selling or exchanging shares by wire or telephone at
any time without notice.
If you sell or exchange shares by telephone, you may be responsible for any
fraudulent telephone orders as long as Galaxy has taken reasonable precautions
to
[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 BKB SHARES
<PAGE>
verify your identity, such as requesting information about the way in which
your account is registered or about recent transactions in your account.
Galaxy normally pays you cash when you sell your shares, but it has the right to
deliver securities owned by a Fund instead of cash. When you sell these
securities, you'll pay brokerage charges.
Sales proceeds are normally sent to you within three business days but Galaxy
reserves the right to send sales proceeds within seven days if sending proceeds
earlier could adversely affect a Fund.
If any shares that you're selling are part of an investment you've paid for with
a personal check, Galaxy will delay sending your sales proceeds until the check
clears, which can take up to 15 days from the purchase date.
Galaxy reserves the right to vary or waive any minimum investment requirements.
GALAXY BKB SHARES 27
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund, except the Growth Fund II, generally declares dividends from net
investment income daily and pays them monthly. The Growth Fund II generally pays
dividends from net investment income on a semi-annual basis. It is expected that
the annual distributions of the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond and Massachusetts Intermediate Municipal Bond Funds
will be mainly income dividends. It is expected that the annual distributions of
the Growth Fund II will normally - but not always - consist primarily of capital
gains rather than ordinary income. Each of the Funds normally pays any realized
capital gains at least once a year. Dividends and distributions are paid in cash
unless you indicate in a letter to Galaxy that you want to have dividends and
distributions reinvested in additional shares.
FEDERAL TAXES
GROWTH FUND II
The Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). Distributions attributable to the
net capital gain of the Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares. Other Fund distributions
(including distributions attributable to short-term capital gains of a Fund)
will generally be taxable to you as ordinary income. You will be subject to
income tax on these distributions regardless of whether they are paid in cash or
reinvested in additional shares. Taxable dividends paid to you in January may be
taxable as if they had been paid the previous December. You will be notified
annually of the tax status of distributions to you.
Dividends paid by the Growth Fund II to its corporate shareholders and that are
attributable to qualifying dividends the Fund receives from U.S. corporations
may be eligible, in the hands of the corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements and
debt financing limitations.
INTERMEDIATE TAX-EXEMPT BOND FUND, CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
AND MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
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.
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. If
you receive an exempt-interest dividend with respect to any share and the share
is held by you for six months or less, any loss on the sale or exchange of the
share will be disallowed to the extent of such dividend amount.
You should note that a portion of the exempt-interest dividends paid by 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.
28 GALAXY BKB SHARES
<PAGE>
ALL FUNDS
In the case of any Fund other than Money Market Funds 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.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months except that any loss realized on
shares held for six months or less will be treated as a long-term capital loss
to the extent of any capital gain dividends that were received on the shares.
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.
STATE AND LOCAL TAXES
Shareholders may also be subject to state and local taxes on distributions,
redemptions and exchanges. State income taxes may not apply however to the
portions of a Fund's distributions, if any, that are attributable to interest on
U.S. Government securities or on securities of the particular state or
localities within the state. 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, or from any capital gains, will be subject to the particular
state's taxes. However, with respect to the Connecticut Intermediate Municipal
Bond Fund, dividends, if any, derived from long-term capital gains on
Connecticut municipal securities of issuers in Connecticut will not be subject
to the Connecticut state income tax on individuals, trusts and estates if paid
on Fund shares held as capital assets.
MISCELLANEOUS
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
GALAXY BKB SHARES 29
<PAGE>
GALAXY INVESTOR PROGRAMS
RETIREMENT PLANS
BKB Shares of the Growth Fund II 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 BKB 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 per
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. 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.
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.
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.
30 GALAXY BKB SHARES
<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 Web site at:
www.galaxyfunds.com
[Sidenote:]
HEARING IMPAIRED
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 BKB SHARES 31
<PAGE>
FINANCIAL HIGHLIGHTS
Each Fund began operations as a separate portfolio (the Predecessor Fund) of the
Boston 1784 Funds. On ________, 2000, each Predecessor Fund was reorganized as a
new portfolio of Galaxy. As discussed above in each Fund's risk/return summary,
prior to the reorganization, each Predecessor Fund offered and sold a single
class of shares. The financial highlights tables shown below will help you
understand the financial performance for each Predecessor Fund for the six-month
period ended November 30, 1999 and for the past five fiscal years (or the period
since a particular Predecessor Fund began operations). Certain information
reflects the financial performance of a single share. The total returns in the
tables represent the rate that an investor would have earned (or lost) on an
investment in each Predecessor Fund, assuming all dividends and distributions
were reinvested. The information for the semi-annual period ended November 30,
1999 is unaudited and such information, along with the Predecessor Fund's
financial statements, is included in the Predecessor Funds' Semi-Annual Reports
and incorporated by reference into the SAI. The information for the past five
fiscal years or periods has been audited by PricewaterhouseCoopers, LLP,
independent auditors, whose report, along with the Predecessor Funds' financial
statements, are included in the Predecessor Funds' Annual Reports and are
incorporated by reference into the SAI. The Annual and Semi-Annual Reports and
SAI are available free of charge upon request.
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30,
(unaudited) For the year ended May 31,
------------------ ---------------------------------------------------
1999 1999 1998 1997 1996 1995
--------------------------------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14 $ 9.90
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.22 0.45 0.48 0.50 0.51 0.48
--------- --------- --------- --------- --------- ---------
Net realized and unrealized gain (loss) on
investments (0.46) (0.01) 0.44 0.19 (0.09) 0.24
--------- --------- --------- --------- --------- ---------
Total from investment operations (0.24) 0.44 0.92 0.69 0.42 0.72
Less dividends:
Dividends from net investment income (0.22) (0.45) (0.48) (0.50) (0.51) (0.48)
--------- --------- --------- --------- --------- ---------
Dividends from net realized capital gains (0.11) (0.18) (0.10) -- (0.06) --
--------- --------- --------- --------- --------- ---------
Total dividends (0.33) (0.63) (0.58) (0.50) (0.57) (0.48)
Net increase (decrease) in net asset value (0.57) (0.19) 0.34 0.19 (0.15) 0.24
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 9.76 $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14
--------------------------------------------------------- ========= ========= ========= ========= ========= =========
Total return (2.33)%(1) 4.24% 9.24% 7.74% 4.31% 7.58%
Ratios/supplemental data:
Net assets, end of period (000's) $345,162 $356,995 $303,578 $250,526 $196,787 $176,345
--------- --------- --------- --------- --------- ---------
Ratios to average net assets:
Net investment income including
reimbursement/waiver 4.43%(2) 4.31% 4.62% 4.92% 4.90% 5.02%
--------- --------- --------- --------- --------- ---------
Net investment income including
reimbursement/waiver 4.12%(2) 4.00% 4.30% 4.55% 4.48% 4.56%
--------- --------- --------- --------- --------- ---------
Operating expenses including reimbursement/waiver 0.80%(2) 0.80% 0.80% 0.80% 0.79% 0.80%
--------- --------- --------- --------- --------- ---------
Operating expenses excluding reimbursement/waiver 1.11%(2) 1.11% 1.12% 1.17% 1.21% 1.26%
--------- --------- --------- --------- --------- ---------
Portfolio turnover rate 31.81% 68.58% 34.06% 33.24% 37.35% 74.74%
</TABLE>
* The Fund commenced operations on June 14, 1993 as a separate portfolio (the
"Predecessor Fund") of the Boston 1784 Funds. On ________, 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares other than
through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received BKB Shares of the Fund.
(1) Not annualized.
(2) Annualized.
32 GALAXY BKB SHARES
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30, For the period
(unaudited) For the year ended May 31, ended May 31,
------------------ ----------------------------------------------------
1999 1999 1998 1997 1996 1995(1)
--------------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27 $ 10.00
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.23 0.48 0.50 0.51 0.53 0.45
--------- --------- --------- --------- --------- ---------
Net realized and unrealized gain (loss) on
investments (0.43) (0.08) 0.45 0.21 (0.10) 0.27
--------- --------- --------- --------- --------- ---------
Total from investment operations (0.20) 0.40 0.95 0.72 0.43 0.72
Less dividends:
Dividends from net investment income (0.23) (0.48) (0.50) (0.51) (0.53) (0.45)
--------- --------- --------- --------- --------- ---------
Dividends from net realized capital gains (0.05) (0.06) (0.02) -- -- --
--------- --------- --------- --------- --------- ---------
Total dividends (0.28) (0.54) (0.52) (0.51) (0.53) (0.45)
Net increase (decrease) in net asset value (0.48) (0.14) 0.43 0.21 (0.10) 0.27
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 10.19 $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27
--------------------------------------------------------- ========= ========= ========= ========= ========= =========
Total return (1.87)%(2) 3.72% 9.29% 7.26% 4.20% 7.45%(2)
Ratios/supplemental data:
Net assets, end of period (000's) $178,270 $187,725 $142,107 $103,104 $ 81,441 $ 61,369
--------- --------- --------- --------- --------- ---------
Ratios to average net assets:
Net investment income including
reimbursement/waiver 4.43%(3) 4.37% 4.66% 4.94% 5.02% 5.44%(3)
--------- --------- --------- --------- --------- ---------
Net investment income including
reimbursement/waiver 4.11%(3) 4.05% 4.32% 4.53% 4.48% 4.56%(3)
--------- --------- --------- --------- --------- ---------
Operating expenses including reimbursement/waiver 0.80%(3) 0.80% 0.80% 0.76% 0.75% 0.52%(3)
--------- --------- --------- --------- --------- ---------
Operating expenses excluding reimbursement/waiver 1.12%(3) 1.12% 1.14% 1.17% 1.29% 1.40%(3)
--------- --------- --------- --------- --------- ---------
Portfolio turnover rate 16.84% 19.10% 16.81% 4.28% 20.41% 35.56%
</TABLE>
* The Fund commenced operations on August 1, 1994 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On ________, 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares other than
through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received BKB Shares of the Fund.
(1) Period from commencement of operations.
(2) Not annualized.
(3) Annualized.
GALAXY BKB SHARES 33
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30,
(unaudited) For the year ended May 31,
------------------ ---------------------------------------------------
1999 1999 1998 1997 1996 1995
--------------------------------------------------------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.39 $10.42 $ 10.01 $ 9.78 $ 9.90 $ 9.81
-------- -------- -------- --------- --------- ---------
Income from investment operations:
Net investment income 0.23 0.45 0.47 0.47 0.48 0.47
-------- -------- -------- --------- --------- ---------
Net realized and unrealized gain (loss) on
investments (0.42) (0.03) 0.41 0.23 (0.12) 0.09
-------- -------- -------- --------- --------- ---------
Total from investment operations (0.19) 0.42 0.88 0.70 0.36 0.56
Less dividends:
Dividends from net investment income (0.23) (0.45) (0.47) (0.47) (0.48) (0.47)
-------- -------- -------- --------- --------- ---------
Dividends from net realized capital gains -- -- -- -- -- --
-------- -------- -------- --------- --------- ---------
Total dividends (0.23) (0.45) (0.47) (0.47) (0.48) (0.47)
Net increase (decrease) in net asset value (0.42) (0.03) 0.41 0.23 (0.12) 0.09
-------- -------- -------- --------- --------- ---------
Net asset value, end of period $ 9.97 $ 10.39 $ 10.42 $ 10.01 $ 9.78 $ 9.90
--------------------------------------------------------- ======== ======== ======== ========= ========= =========
Total return (1.88)%(1) 4.10% 8.91% 7.30% 3.64% 6.00%
Ratios/supplemental data:
Net assets, end of period (000's) $252,068 $267,871 $206,137 $147,459 $106,619 $ 82,058
-------- -------- -------- --------- --------- ---------
Ratios to average net assets:
Net investment income including
reimbursement/waiver 4.45%(2) 4.32% 4.54% 4.74% 4.73% 4.93%
-------- -------- -------- --------- --------- ---------
Net investment income including
reimbursement/waiver 4.13%(2) 4.00% 4.20% 4.35% 4.25% 4.38%
-------- -------- -------- --------- --------- ---------
Operating expenses including reimbursement/waiver 0.80%(2) 0.80% 0.80% 0.79% 0.80% 0.80%
-------- -------- -------- --------- --------- ---------
Operating expenses excluding reimbursement/waiver 1.12%(2) 1.12% 1.14% 1.18% 1.28% 1.35%
-------- -------- -------- --------- --------- ---------
Portfolio turnover rate 0.82% 9.32% 6.45% 9.47% 47.00% 34.59%
</TABLE>
* The Fund commenced operations on June 14, 1993 as a separate portfolio (the
"Predecessor Fund") of the Boston 1784 Funds. On ________, 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares other than
through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received BKB Shares of the Fund.
(1) Not annualized.
(2) Annualized.
34 GALAXY BKB SHARES
<PAGE>
GALAXY GROWTH FUND II*
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the six month
period ended
November 30, For the period
(unaudited) For the year ended ended May 31,
------------------ ------------------------------------ --------------
1999 1999 1998 1997 1996(1)
--------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.06 $ 12.93 $ 12.20 $ 11.27 $10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (0.02) (0.08) (0.05) 0.02 0.02
--------- --------- --------- --------- ---------
Net realized and unrealized gain (loss) on
investments 5.26 (0.41) 1.59 0.96 1.25
--------- --------- --------- --------- ---------
Total from investment operations 5.24 (0.49) 1.54 0.98 1.27
Less dividends:
Dividends from net investment income -- -- -- (0.05) --
--------- --------- --------- --------- ---------
Dividends from net realized capital gains (1.20) (0.38) (0.81) -- --
--------- --------- --------- --------- ---------
Total dividends (1.20) (0.38) (0.81) (0.05) --
Net increase (decrease) in net asset value 4.04 (0.87) 0.73 0.93 1.27
--------- --------- --------- --------- ---------
Net asset value, end of period $ 16.10 $12.06 $ 12.93 $ 12.20 $11.27
--------------------------------------------------------- ========= ========= ========= ========= =========
Total return 43.20%(2) (3.54)% 12.64% 8.77% 12.70%(2)
Ratios/supplemental data:
Net assets, end of period (000's) $249,396 $185,476 $257,550 $261,487 $46,026
--------- --------- --------- --------- ---------
Ratios to average net assets:
Net investment income including
reimbursement/waiver (0.43)%(3) (0.39)% (0.35)% 0.17% 1.75%(3)
--------- --------- --------- --------- ---------
Net investment income including
reimbursement/waiver (0.68)%(3) (0.64)% (0.60)% (0.21)% 0.22%(3)
--------- --------- --------- --------- ---------
Operating expenses including reimbursement/waiver 0.90%(3) 0.93% 0.91% 0.77% 0.20%(3)
--------- --------- --------- --------- ---------
Operating expenses excluding reimbursement/waiver 1.15%(3) 1.18% 1.16% 1.15% 1.73%(3)
--------- --------- --------- --------- ---------
Portfolio turnover rate 45.05% 61.02% 48.60% 57.46% 0.00%
</TABLE>
* The Fund commenced operations on March 28, 1996 as a separate portfolio
(the "Predecessor Fund") of the Boston 1784 Funds. On ________, 2000, the
Predecessor Fund was reorganized as a new portfolio of Galaxy. Prior to the
reorganization, the Predecessor Fund offered and sold one class of shares.
In connection with the reorganization, shareholders of the Predecessor Fund
exchanged their shares for Trust Shares and BKB Shares of the Fund.
Shareholders of the Predecessor Fund who purchased their shares other than
through an investment management, trust, custody, or other agency
relationship with BankBoston, N.A. received BKB Shares of the Fund.
(1) Period from commencement of operations.
(2) Not annualized.
(3) Annualized.
GALAXY BKB SHARES 35
<PAGE>
This page intentionally left blank
<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 will contain more information about each
Fund and a discussion about the market conditions and investment strategies that
had a significant effect on each Fund's performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains detailed information about the Funds and their policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Funds and make shareholder inquiries by calling Galaxy at 1-877-BUY-GALAXY
(1-877-289-4252) or by writing to:
The Galaxy Fund
P.O. Box 6520
Providence, RI 02940-6520
If you buy your shares through a financial institution, you may contact your
institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Funds, including the SAI.
They'll charge you a fee for this service. You can also visit the SEC Public
Reference Room and copy the documents while you're there. For information about
the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090.
Reports and other information about the Funds are also available on the EDGAR
Database on the SEC's Web site at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
SEC's e-mail address at [email protected].
Galaxy's Investment Company Act File No. is 811-4636.
PROBKB (6/00)
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 2000 (AS REVISED [_____], 2000)
GALAXY INSTITUTIONAL MONEY MARKET FUND SHARES
GALAXY INSTITUTIONAL TREASURY MONEY MARKET FUND
GALAXY FLORIDA MUNICIPAL BOND FUND
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND RETAIL A SHARES,
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND BKB SHARES AND
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND TRUST SHARES
GALAXY GROWTH FUND II RETAIL A SHARES,
RETAIL B SHARES,
BKB SHARES AND
TRUST SHARES
This Statement of Additional Information is not a prospectus. It relates to
the prospectuses for the Funds as listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"). Each Fund commenced operations
as a separate portfolio (the "Predecessor Fund") of the Boston 1784 Funds. On
[_______], 2000, each Predecessor Fund was reorganized as a new portfolio of
Galaxy. The Prospectuses, as well as the Predecessor Funds' Semi-Annual Reports
to Shareholders dated November 30, 1999 and Annual Reports to Shareholders dated
May 31, 1999, 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 Intermediate Tax-Exempt Bond Fund,
Connecticut Intermediate Municipal Bond Fund, Massachusetts Intermediate
Municipal Bond Fund and Growth Fund II and Retail B Shares of the Growth
Fund II dated June 1, 2000 (as revised [_______], 2000).
- Prospectus for BKB Shares of the Intermediate Tax-Exempt Bond Fund,
Connecticut Intermediate Municipal Bond Fund, Massachusetts Intermediate
Municipal Bond Fund and Growth Fund II dated June 1, 2000 (as revised
[_______], 2000).
<PAGE>
- Prospectus for Shares of the Institutional Money Market Fund, Institutional
Treasury Money Market Fund and Florida Municipal Bond Fund and Trust Shares
of the Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate
Municipal Bond Fund, Massachusetts Intermediate Municipal Bond Fund and
Growth Fund II dated June 1, 2000 (as revised [_______], 2000).
The Predecessor Funds' unaudited financial statements included in their
Semi-Annual Reports to Shareholders dated November 30, 1999, and the Predecessor
Funds' audited financial statements and the reports thereon of
PricewaterhouseCoopers LLP, the Predecessor Funds' independent accountants,
included in their Annual Reports to Shareholders dated May 31, 1999, are
incorporated by reference into this Statement of Additional Information. No
other parts of the Predecessor Funds' Semi-Annual Reports to Shareholders or
Annual Reports to Shareholders are incorporated herein.
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TABLE OF CONTENTS
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GENERAL INFORMATION..............................................................................................1
DESCRIPTION OF GALAXY AND ITS SHARES.............................................................................2
INVESTMENT STRATEGIES, POLICIES AND RISKS........................................................................5
Institutional Money Market Fund.........................................................................5
Institutional Treasury Money Market Fund................................................................5
Intermediate Tax-Exempt Bond Fund.......................................................................5
Connecticut Intermediate Municipal Bond Fund............................................................6
Massachusetts Intermediate Municipal Bond Fund..........................................................6
Florida Municipal Bond Fund.............................................................................7
Growth Fund II..........................................................................................8
Special Risk Considerations.............................................................................8
Foreign Securities......................................................................................8
European Currency Unification...........................................................................9
General Risk Considerations.............................................................................9
Other Investment Policies and Risk Considerations......................................................10
Ratings ...............................................................................................10
U.S. Government Obligations and Money Market Instruments...............................................11
Variable and Floating Rate Obligations.................................................................13
Municipal Securities...................................................................................14
Stand-by Commitments...................................................................................17
Private Activity Bonds.................................................................................18
Custodial Receipts and Certificates of Participation...................................................18
Repurchase and Reverse Repurchase Agreements...........................................................19
Securities Lending.....................................................................................20
Investment Company Securities..........................................................................20
Derivative Securities..................................................................................21
American, European and Continental Depositary Receipts.................................................27
Asset-Backed Securities................................................................................28
Mortgage-Backed Securities.............................................................................29
Convertible Securities.................................................................................29
When-Issued Purchases and Forward Commitment Transactions..............................................30
Guaranteed Investment Contracts........................................................................31
Common and Preferred Stock.............................................................................31
Loan Participations....................................................................................32
STRIPS ................................................................................................32
Warrants ..............................................................................................32
Zero Coupon Securities.................................................................................32
Portfolio Securities Generally.........................................................................33
Special Considerations Relating to Connecticut Municipal Securities....................................33
Special Considerations Relating to Florida Municipal Securities........................................36
Portfolio Turnover.....................................................................................40
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INVESTMENT LIMITATIONS..........................................................................................40
Non-Fundamental Policies...............................................................................43
VALUATION OF PORTFOLIO SECURITIES...............................................................................44
Valuation of the Institutional Money Market and Institutional Treasury Money Market Funds..............44
Valuation of the Intermediate Tax-Exempt Bond, Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond and Florida Municipal Bond Funds....................46
Valuation of the Growth Fund II........................................................................46
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................................................47
Purchases of Retail A Shares, Retail B Shares and BKB Shares...........................................47
General ...............................................................................................47
Customers of Institutions..............................................................................48
Applicable Sales Charge - Retail A Shares..............................................................48
Computation of Offering Price - Retail A Shares........................................................50
Quantity Discounts.....................................................................................51
Applicable Sales Charge - Retail B Shares..............................................................53
Characteristics of Retail A Shares and Retail B Shares.................................................54
Factors to Consider When Selecting Retail A Shares or Retail B Shares..................................55
Purchases of Shares of the Institutional Money Market Fund
and Institutional Treasury Money Market Fund..................................................56
Purchases of Trust Shares and Shares of the Florida Municipal Bond Fund................................57
Other Purchase Information.............................................................................57
Redemptions............................................................................................57
INVESTOR PROGRAMS...............................................................................................58
Exchange Privilege--Retail A Shares, Retail B Shares and BKB Shares and Shares of the
Institutional Money Market and Institutional Treasury Money Market Funds......................58
Retirement Plans.......................................................................................59
Automatic Investment Program and Systematic Withdrawl Plan -
Retail A Shares, Retail B Shares and BKB Shares...............................................60
Payroll Deduction Program - Retail A Shares, Retail B Shares and BKB Shares............................61
College Investment Program - Retail A Shares, Retail B Shares and BKB Shares...........................61
Direct Deposit Program - Retail A Shares, Retail B Shares and BKB Shares...............................61
TAXES ..........................................................................................................61
In General.............................................................................................61
State and Local........................................................................................63
Taxation of Certain Financial Instruments..............................................................65
Miscellaneous..........................................................................................66
TRUSTEES AND OFFICERS...........................................................................................66
Shareholder and Trustee Liability......................................................................70
INVESTMENT ADVISER..............................................................................................71
Administrator..........................................................................................72
CUSTODIAN AND TRANSFER AGENT....................................................................................74
EXPENSES .......................................................................................................75
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PORTFOLIO TRANSACTIONS..........................................................................................75
SHAREHOLDER SERVICES PLANS......................................................................................77
DISTRIBUTION AND SERVICES PLAN..................................................................................80
DISTRIBUTOR.....................................................................................................81
AUDITORS .......................................................................................................82
COUNSEL ........................................................................................................82
PERFORMANCE AND YIELD INFORMATION...............................................................................83
Institutional Money Market and Institutional Treasury Money Market Funds...............................83
Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund, Municipal Bond Fund and Growth Fund II......................84
Tax-Equivalency Tables - Connecticut Intermediate Municipal Bond, Massachusetts Intermediate
Municipal Bond and Florida Municipal Bond
Funds.........................................................................................87
Performance Reporting..................................................................................92
MISCELLANEOUS...................................................................................................93
FINANCIAL STATEMENTS...........................................................................................100
APPENDIX A.....................................................................................................A-1
APPENDIX B.....................................................................................................B-1
</TABLE>
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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 the seven Funds described on the cover page. 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.
The Funds commenced operations as separate portfolios (each a
"Predecessor Fund," and collectively, the "Predecessor Funds") of the Boston
1784 Funds. On _________, 2000, each Predecessor Fund was reorganized as a new
portfolio of The Galaxy Fund (the "Reorganization"). Prior to the
Reorganization, the Predecessor Funds offered and sold one class of shares.
In connection with the Reorganization, shareholders of the Predecessor Funds
exchanged their shares for Shares, Trust Shares and BKB Shares of the Funds.
Shareholders of the Predecessor Funds who purchased their shares through an
investment management, trust, custody, or other agency relationship with
BankBoston, N.A. received Shares or Trust Shares of the Funds. BKB Shares
were issued to shareholders of the Predecessor Funds who were not eligible to
receive Trust Shares at the time of the Reorganization. Following the
Reorganization, BKB Shares will be available for purchase only by those
shareholders who received BKB Shares in the Reorganization. BKB Shares of a
Fund will convert into Retail A Shares of the same Fund on the first
anniversary of the Reorganization, provided that prior thereto the Board of
Trustees of Galaxy has determined that such conversion is in the best
interests of the holders of BKB Shares.
Prior to the Reorganization, (i) the Institutional Money Market Fund
was named the Boston 1784 Institutional Prime Money Market Fund; (ii) the
Institutional Treasury Money Market Fund was named the Boston 1784 Institutional
U.S. Treasury Money Market Fund; (iii) the Intermediate Tax-Exempt Bond Fund was
named the Boston 1784 Tax-Exempt Medium-Term Income Fund; (iv) the Connecticut
Intermediate Municipal Bond Fund was named the Boston 1784 Connecticut
Tax-Exempt Income Fund; (v) the Massachusetts Intermediate Municipal Bond Fund
was named the Boston 1784 Massachusetts Tax-Exempt Income Fund; (vi) the Florida
Municipal Bond Fund was named the Boston 1784 Florida Tax-Exempt Income Fund;
and (vii) the Growth Fund II was named the Boston 1784 Growth Fund. References
in this Statement of Additional Information are to each Predecessor Fund's
current name. In addition, certain of the financial information contained in
this Statement of Additional Information is that of the Predecessor Funds.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, FLEETBOSTON CORPORATION OR ANY OF ITS AFFILIATES, FLEET
INVESTMENT ADVISORS INC., OR ANY FLEET BANK. SHARES OF THE FUNDS ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL VARY AS A RESULT OF MARKET CONDITIONS OR OTHER FACTORS SO THAT SHARES
OF THE FUNDS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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<PAGE>
ALTHOUGH THE INSTITUTIONAL MONEY MARKET AND INSTITUTIONAL TREASURY MONEY MARKET
FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUNDS. YOU ALSO COULD LOSE MONEY BY
INVESTING IN ANY OF THE OTHER FUNDS. AN INVESTMENT IN THE FUNDS INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
DESCRIPTION OF GALAXY AND ITS SHARES
The Galaxy Fund ("Galaxy") is an open-end management investment company
currently offering shares of beneficial interest in thirty six 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 Money Market Fund, Institutional Government Money
Market Fund, Institutional Treasury Money Market Fund, Prime Reserves,
Government Reserves, Tax-Exempt Reserves, Equity Value Fund, Equity Growth Fund,
Growth Fund II, 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,
Intermediate Tax-Exempt Bond Fund, New Jersey Municipal Bond Fund, New York
Municipal Bond Fund, Connecticut Municipal Bond Fund, Connecticut Intermediate
Municipal Bond Fund, Massachusetts Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund, Rhode Island Municipal Bond Fund and Florida
Municipal Bond Fund. Galaxy is also authorized to issue shares of beneficial
interest in two additional investment portfolios, the MidCap Equity Fund and the
New York Municipal Money Market Fund. As of the date of this Statement of
Additional Information, however, the MidCap Equity Fund and the New York
Municipal Money Market Fund 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
FF Shares (Shares), representing interests in the Institutional Money Market
Fund; Class GG Shares (Shares), representing interests in the Institutional
Treasury Money Market Fund; Class II Shares (Shares), representing interests in
the Florida Municipal Bond Fund; Class JJ-Series 1 shares (Trust Shares), Class
JJ-Series 2 shares (Retail A Shares) and Class JJ-Series 3 shares (BKB Shares),
each series representing interests in the Intermediate Tax-Exempt Bond Fund;
Class KK-Series 1 shares (Trust Shares), Class KK-Series 2 shares (Retail A
Shares) and Class KK-Series 3 shares (BKB Shares), each series representing
interests in the Connecticut Intermediate Municipal Bond Fund; Class LL-Series 1
shares (Trust Shares), Class LL-Series 2 shares (Retail A Shares) and Class
LL-Series 3 shares (BKB Shares), each series representing interests in the
Massachusetts Intermediate Municipal Bond Fund; Class MM-Series
1 shares (Trust Shares), Class MM-Series
-2-
<PAGE>
2 shares (Retail A Shares), Class MM-Series 3 shares (BKB Shares) and Class
MM-Series 4 shares (Retail B Shares), each series representing interests in the
Growth Fund II. Each Fund, except for the Connecticut Intermediate Municipal
Bond, Massachusetts Intermediate Municipal Bond and Florida Municipal Bond
Funds, is classified as a diversified company under the Investment Company Act
of 1940, as amended (the "1940 Act"). Each of the Connecticut Intermediate
Municipal Bond, Massachusetts Intermediate Municipal Bond and Florida Municipal
Bond Funds is classified as a non-diversified company under the 1940 Act.
Each share of Galaxy (irrespective of series designation) has a par
value of $.001 per share, represents an equal proportionate interest in the
related investment portfolio with other shares of the same class (irrespective
of series designation), and is entitled to such dividends and distributions out
of the income earned on the assets belonging to such investment portfolio as are
declared in the discretion of Galaxy's Board of Trustees.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, shares will be fully paid and
non-assessable. Each series of shares in a Fund (i.e., Retail A Shares, Retail B
Shares, BKB 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), holders of Retail B Shares will bear the expenses of the Distribution
and Services Plan for Retail B Shares and holders of BKB Shares will bear the
expenses of the Shareholder Services Plan for BKB Shares. In addition, each
series may incur differing transfer agency fees and may have differing sales
charges. Standardized yield and total return quotations are computed separately
for each series of shares. The differences in expenses paid by the respective
series will affect their performance. See "Shareholder Services Plans" 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
-3-
<PAGE>
Galaxy's Shareholder Services Plan for Retail A Shares and Trust Shares, only
Retail B Shares of the Growth Fund II 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, and only BKB 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 BKB Shares). Further, shareholders of all
of the Funds, as well as those of any other investment portfolio now or
hereafter offered by Galaxy, will vote together in the aggregate and not
separately on a Fund-by-Fund basis, except as otherwise required by law or when
permitted by the Board of Trustees. Rule 18f-2 under the 1940 Act provides that
any matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as Galaxy shall not be deemed to have
been effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Fund affected by the matter. A particular Fund is
deemed to be affected by a matter unless it is clear that the interests of each
Fund in the matter are substantially identical or that the matter does not
affect any interest of the Fund. Under the Rule, the approval of an investment
advisory agreement or a distribution plan or any change in an investment
objective or a fundamental investment policy would be effectively acted upon
with respect to a Fund only if approved by a majority of the outstanding shares
of such Fund (irrespective of series designation). However, the Rule also
provides that the ratification of the appointment of independent public
accountants, the approval of principal underwriting contracts, and the election
of trustees may be effectively acted upon by shareholders of Galaxy voting
without regard to class or series.
Shareholders are entitled to one vote for each full share held, and a
proportionate fractional vote for each fractional share held, and will vote in
the aggregate and not by class or series, except as otherwise expressly required
by law or when the Board of Trustees determines that the matter to be voted on
affects only the interests of shareholders of a particular class or series.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
in the aggregate of Galaxy's outstanding shares may elect all of the trustees,
irrespective of the votes of other shareholders.
Galaxy is not required under Massachusetts law to hold annual
shareholder meetings and intends to do so only if required by the 1940 Act.
Shareholders have the right to remove Trustees. Galaxy's Declaration of Trust
provides that a meeting of shareholders shall be called by the Board of Trustees
upon a written request of shareholders owning at least 10% of the outstanding
shares of Galaxy entitled to vote.
Galaxy's Declaration of Trust authorizes the Board of Trustees, without
shareholder approval (unless otherwise required by applicable law), to (a) sell
and convey the assets of a Fund to another management investment company for
consideration which may include securities issued by the purchaser and, in
connection therewith, to cause all outstanding shares of the Fund involved to be
redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert a Fund's assets into
money and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at their net asset value; or (c) combine the assets
belonging to a Fund with the assets belonging to another Fund of Galaxy and, in
connection therewith, to cause all outstanding shares of any Fund to be redeemed
-4-
<PAGE>
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 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 Institutional Money Market Fund and Institutional Treasury Money
Market 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 following investment strategies, policies and risks supplement those
set forth in the Funds' Prospectuses.
INSTITUTIONAL MONEY MARKET FUND
Instruments in which the Institutional 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.
INSTITUTIONAL TREASURY MONEY MARKET FUND
Portfolio securities held by the Institutional Treasury Money Market
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.
ALTHOUGH THE FUND INVESTS IN U.S. GOVERNMENT OBLIGATIONS, AN
INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
INTERMEDIATE TAX-EXEMPT BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Intermediate Tax-Exempt Bond Fund's shareholders, the
Fund will invest, except during temporary defensive periods, at least 80% of its
net assets in debt obligations issued by or on
-5-
<PAGE>
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% of net assets under normal market conditions). The
Fund may comply with this 80% policy by investing in a partnership, trust,
regulated investment company or other entity which invests in such Municipal
Securities, in which case the Fund's investment in such entity shall be deemed
to be an investment in the underlying Municipal Securities in the same
proportion as such entity's investment in such Municipal Securities bears to its
net assets.
See "Special Considerations and Risks" and "Other Investment Policies
and Risk Considerations" below for information regarding additional investment
policies of the Intermediate Tax-Exempt Bond Fund.
CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Connecticut Intermediate
Municipal Bond Fund will invest, except during temporary defensive periods, at
least 80% of its net assets in Municipal Securities, primarily (at least 65% of
net assets under normal market conditions) in Municipal Securities issued by or
on behalf of the State of Connecticut, its political sub-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"). The Fund may comply with these 80% and 65% policies by investing
in a partnership, trust, regulated investment company or other entity which
invests in such Municipal Securities, in which case the Fund's investment in
such entity shall be deemed to be an investment in the underlying Municipal
Securities in the same proportion as such entity's investment in such Municipal
Securities bears to its net assets. 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 Intermediate Municipal Bond Fund.
MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Massachusetts Intermediate
Municipal Bond Fund will invest, except during temporary defensive periods, at
least 80% of its net assets in Municipal Securities,
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<PAGE>
primarily (at least 65% of net assets under normal market conditions) 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"). The Fund may comply with these 80% and
65% policies by investing in a partnership, trust, regulated investment company
or other entity which invests in such Municipal Securities, in which case the
Fund's investment in such entity shall be deemed to be an investment in the
underlying Municipal Securities in the same proportion as such entity's
investment in such Municipal Securities bears to its net assets. 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 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 Intermediate Municipal Bond Fund.
FLORIDA MUNICIPAL BOND FUND
As a matter of fundamental policy that cannot be changed without the
requisite consent of the Fund's shareholders, the Florida Municipal Bond Fund
will invest, except during temporary
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<PAGE>
defensive periods, at least 80% of its net assets in Municipal Securities,
primarily (normally, at least 65% of net assets under normal market conditions)
in Municipal Securities issued by or on behalf of the State of Florida, its
political sub-divisions, authorities, agencies, instrumentalities and
corporations, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from federal income tax, and that are exempt from Florida
intangible personal property tax ("Florida Municipal Securities"). The Fund may
comply with these 80% and 65% policies by investing in a partnership, trust,
regulated investment company or other entity which invests in such Municipal
Securities, in which case the Fund's investment in such entity shall be deemed
to be an investment in the underlying Municipal Securities in the same
proportion as such entity's investment in such Municipal Securities bears to its
net assets. Dividends derived from interest on Municipal Securities other than
Florida Municipal Securities will generally be exempt from regular federal
income tax but may be subject to Florida intangible personal property 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 Florida Municipal Bond Fund.
GROWTH FUND II
Convertible securities purchased by the Growth Fund II 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 25% of its total assets in foreign
securities. See "Special Risk Considerations -- Foreign Securities" below. The
Fund may also engage in foreign currency hedging transactions in an attempt to
minimize the effect of currency fluctuations on 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 Growth Fund II.
SPECIAL RISK CONSIDERATIONS
FOREIGN SECURITIES
Investments by the Growth Fund II 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
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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 the Growth Fund II may invest in securities denominated in
foreign currencies, the Fund values its securities and other assets in U.S.
dollars. As a result, the net asset value of the Fund's shares may fluctuate
with U.S. dollar exchange rates as well as with price changes of the Fund's
securities in the various local markets and currencies. Thus, an increase in the
value of the U.S. dollar compared to the currencies in which the Fund makes its
foreign investments could reduce the effect of increases and magnify the effect
of decreases in the price of the Fund's securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Fund's securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Fund is 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 Growth Fund II may invest and may result in the Fund facing
additional risks. These risks, which include, but are not limited to, volatility
of currency exchange rates as a result of the conversion, uncertainty as to
capital market reaction, conversion costs that may affect issuer profitability
and creditworthiness, and lack of participation by some European countries, may
increase the volatility of the Fund's net asset value per share.
GENERAL RISK CONSIDERATIONS
Generally, the market value of fixed income securities, including
Municipal Securities, can be expected to vary inversely to changes in prevailing
interest rates. During periods of declining interest rates, the market value of
investment portfolios comprised primarily of fixed income securities, such as
the Intermediate Tax-Exempt Bond, Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond and Florida Municipal Bond Funds will
tend to increase, and during periods of rising interest rates, the market value
will tend
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to decrease. In addition, during periods of declining interest rates, the yields
of investment portfolios comprised primarily of fixed income securities will
tend to be higher than prevailing market rates and, in periods of rising
interest rates, yields will tend to be somewhat lower. Fixed income securities
with longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also offset the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in a Fund's net asset value.
Although the Intermediate Tax-Exempt Bond, Connecticut Intermediate
Municipal Bond, Massachusetts Intermediate Municipal Bond and Florida Municipal
Bond Funds do not presently intend 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.
The Connecticut Intermediate Municipal Bond, Massachusetts Intermediate
Municipal Bond and Florida Municipal Bond Funds are each classified as a
non-diversified investment company 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.
RATINGS
The Institutional Money Market and Institutional Treasury Money Market
Funds will purchase only those instruments which meet the applicable quality
requirements described below. The Institutional 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")
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(such as Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service,
Inc. ("Moody's") or Fitch IBCA, Inc. ("Fitch IBCA")) in one of the two highest
categories 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 one
of such Rating Agency's two highest categories for short-term debt, 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 one of the two highest
short-term rating categories. See "Investment Limitations" below.
Information on the requisite investment quality of debt obligations,
including Municipal Securities, eligible for purchase by the Intermediate
Tax-Exempt Bond, Connecticut Intermediate Municipal Bond, Massachusetts
Intermediate Municipal Bond and Florida Municipal Bond Funds, is included in the
applicable Prospectuses and under "Other Investment Policies and Risk
Considerations - Municipal Securities" below.
All debt obligations, including convertible bonds, purchased by the
Growth Fund II are rated investment grade by Moody's ("Aaa," "Aa," "A" and
"Baa") or S&P ("AAA," "AA," "A" and "BBB"), or, if not rated, are determined to
be of comparable quality by Fleet. Debt securities rated "Baa" by Moody's or
"BBB" by S&P are generally considered to be investment grade securities although
they have speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case for higher rated debt obligations. See
Appendix A to this Statement of Additional Information for a description of
S&P's and Moody's rating categories.
Determinations of comparable quality will be made in accordance with
procedures established by the Board of Trustees. Generally, if a security has
not been rated by a Rating Agency, Fleet will acquire the security if it
determines that the security is of comparable quality to securities that have
received the requisite ratings. Fleet also considers other relevant information
in its evaluation of unrated short-term securities.
U.S. GOVERNMENT OBLIGATIONS AND MONEY MARKET INSTRUMENTS
Each Fund may, in accordance with its investment policies, invest from
time to time in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and in other money market instruments, including
bank obligations and commercial paper.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central
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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.
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.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit, non-negotiable time deposits (including Eurodollar 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, and other short-term
debt obligations issued by banks. With respect to each Fund, bank obligations
also include U.S. dollar-denominated obligations of foreign branches of U.S.
banks, foreign banks or U.S. branches of foreign banks, all of the same type as
domestic bank obligations. Investments in bank obligations are limited to the
obligations of financial institutions having more than $1 billion in total
assets at the time of purchase. Time deposits with a maturity longer than seven
days or that do not provide for payment within seven days after notice will be
subject to each Fund's limitation on illiquid securities described below under
"Investment Limitations." For the purposes of each Fund's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different
government regulation which may limit the amount and types of their loans and
the interest rates that may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds to
finance lending operations and the quality of underlying bank assets.
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
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or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign branches of U.S. banks and U.S. branches of foreign banks may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Such investments may also subject the Funds to
investment risks similar to those accompanying direct investments in foreign
securities. See "Special Risk Considerations -- Foreign Securities." The Funds
will invest in the obligations of U.S. branches of foreign banks or foreign
branches of U.S. banks only when Fleet believes that the credit risk with
respect to the instrument is minimal.
Commercial paper is the term used to designate unsecured short-term
promissory notes issued by corporations and other entities. Commercial paper may
include securities issued by corporations and other entities 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
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 Institutional Money Market Fund and
Growth Fund II 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. 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
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consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and will continuously monitor their financial
status in order to meet payment on demand. In determining average weighted
portfolio maturity of each of these Funds, a variable or floating rate
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligation's next interest rate adjustment. Variable and
floating rate obligations with a demand feature will be deemed to have a
maturity equal to the longer of the period remaining to the next interest rate
adjustment or the demand notice period.
Long-term variable and floating rate obligations held by the
Institutional Money Market and Institutional Treasury Money Market Funds may
have maturities of more than 397 days, provided the Funds are entitled to
payment of principal upon not more than 30 days' notice or at specified
intervals not exceeding one year (upon not more than 30 days' notice).
MUNICIPAL SECURITIES
Municipal Securities acquired by the Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond, Massachusetts Intermediate Municipal
Bond and Florida Municipal Bond Funds include debt obligations issued by
governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses, and the extension of
loans to public institutions and facilities. Private activity bonds that are
issued by or on behalf of public authorities to finance various privately
operated facilities are "Municipal Securities" if the interest paid thereon is
exempt from regular federal income tax and not treated as a specific tax
preference item under the federal alternative minimum tax.
The two principal categories of Municipal Securities which may be held
by the Funds are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed.
The Funds' portfolios may also include "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer. There is no limitation on the amount of moral
obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal
Securities, both within a particular category and between categories, and the
yields on Municipal Securities depend upon a variety of factors, including
general market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of a Rating
Agency, such as Moody's and S&P, described in the Prospectuses and in Appendix A
hereto, represent such Rating Agencies'
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opinions as to the quality of Municipal Securities. It should be emphasized that
these ratings are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating may have different
yields. Municipal Securities of the same maturity and interest rate with
different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and
floating rate tax-exempt instruments, such as variable rate demand notes.
Variable rate demand notes are long-term Municipal Securities that have variable
or floating interest rates and provide a Fund with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on an
applicable interest index or another published interest rate or interest rate
index. Most variable rate demand notes allow a Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only permit a
Fund to tender the security at the time of each interest rate adjustment or at
other fixed intervals. 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.
Also included within the general category of Municipal Securities are
participation certificates in leases, installment purchase contracts, or
conditional sales contracts ("lease obligations") entered into by states or
political subdivisions to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing and may not be as
marketable as more conventional securities. To the extent these securities are
illiquid, they are subject to each Fund's applicable limitation on illiquid
securities described under "Investment Limitations" below.
Certificates of participation represent undivided interests in
lease payments by a governmental or nonprofit entity. A lease may provide that
the certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they become due. In the
event of a default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment. In addition,
certificates of participation are less liquid than other bonds because there is
a limited secondary trading market for such obligations. To alleviate potential
liquidity problems with respect to these investments, a Fund may enter into
remarketing agreements which may provide that the
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seller or a third party will repurchase the obligation within seven days after
demand by the Fund and upon certain conditions such as the Fund's payment of a
fee.
Municipal Securities purchased by the Funds in some cases may be
insured as to the timely payment of principal and interest. There is no
guarantee, however, that the insurer will meet its obligations in the event of a
default in payment by the issuer. In other cases, Municipal Securities may be
backed by letters of credit or guarantees issued by domestic or foreign banks or
other financial institutions which are not subject to federal deposit insurance.
Adverse developments affecting the banking industry generally or a particular
bank or financial institution that has provided its credit or guarantee with
respect to a Municipal Security held by a Fund, including a change in the credit
quality of any such bank or financial institution, could result in a loss to the
Fund and adversely affect the value of its shares. As described above letters of
credit and guarantees issued by foreign banks and financial institutions involve
certain risks in addition to those of similar instruments issued by domestic
banks and financial institutions.
The payment of principal and interest on most Municipal Securities
purchased by the Funds will depend upon the ability of the issuers to meet their
obligations. Each state, the District of Columbia, each of their political
subdivisions, agencies, instrumentalities and authorities and each multistate
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the 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 Funds may purchase short-term general
obligation notes, tax anticipation notes, bond anticipation notes, revenue
anticipation notes, commercial paper, construction loan notes and other forms of
short-term loans that are rated in one of the two highest rating categories
assigned by a Rating Agency with respect to such instruments or, if unrated,
determined by Fleet to be of comparable quality. Such instruments are issued
with a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements or other revenues. In addition, the Funds may invest
in long-term tax-exempt instruments, such as municipal bonds and private
activity bonds to the extent consistent with the limitations set forth in the
Prospectuses.
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
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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 Intermediate Tax-Exempt Bond, Connecticut Intermediate
Municipal Bond, Massachusetts Intermediate Municipal Bond and Florida Municipal
Bond Funds and the liquidity and value of their respective portfolios. In such
an event, the Funds would re-evaluate their investment objectives and policies
and consider possible changes in their structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Funds nor
Fleet will review the proceedings relating to the issuance of Municipal
Securities or the bases for such opinions.
While the Intermediate Tax-Exempt Bond, Connecticut Intermediate
Municipal Bond, Massachusetts Intermediate Municipal and Florida Municipal Bond
Funds will invest primarily in Municipal Securities, the Institutional Money
Market Fund may also invest in Municipal Securities when such investments are
deemed appropriate by Fleet in light of the Fund's investment objective. As a
result of the favorable tax treatment afforded such obligations under the
Internal Revenue Code of 1986, as amended, yields on Municipal Securities can
generally be expected under normal market conditions to be lower than yields on
corporate and U.S. Government obligations, although from time to time Municipal
Securities have outperformed, on a total return basis, comparable corporate and
federal debt obligations as a result of prevailing economic, regulatory or other
circumstances.
STAND-BY COMMITMENTS
The Institutional Money Market, Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond, Massachusetts Intermediate Municipal
Bond and Florida Municipal Bond Funds may acquire "stand-by commitments" with
respect to Municipal Securities held by them. Under a stand-by commitment, a
dealer agrees to purchase, at a Fund's option, specified Municipal Securities at
a specified price. The Funds will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The Funds expect that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, a Fund may pay for a stand-by
commitment either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the yield
otherwise available for the same securities). Where a Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by the Fund. Stand-by commitments acquired by a Fund would be valued at
zero in determining the Fund's net asset value. The default or bankruptcy of a
securities dealer giving such a commitment would not affect the quality of the
Municipal Securities purchased by a Fund. However, without a stand-by
commitment, these securities could be more difficult to sell. A Fund will enter
into stand-by commitments only with those dealers whose credit Fleet believes to
be of high quality.
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Stand-by commitments are exercisable by the Funds at any time before
the maturity of the underlying Municipal Security, and may be sold, transferred
or assigned by the Fund only with respect to the underlying instruments.
Although stand-by commitments are often available without the payment of any
direct or indirect consideration, if necessary or advisable, a Fund may pay for
a stand-by commitment either separately in cash or by paying a higher price for
securities acquired subject to the commitment. Where a Fund pays any
consideration directly or indirectly for a stand-by commitment, its cost will be
reflected as unrealized depreciation for the period during which the commitment
is held by the Fund. A Fund will enter into stand-by commitments only with banks
and broker/dealers that present minimal credit risks. In evaluating the
creditworthiness of the issuer of a stand-by commitment, Fleet will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
PRIVATE ACTIVITY BONDS
The Institutional Money Market, Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond, Massachusetts Intermediate Municipal
Bond and Florida Municipal Bond Funds may invest in "private activity bonds,"
the interest on which, although exempt from regular federal income tax, may
constitute an item of tax preference for purposes of the federal alternative
minimum tax. Investments in such securities, however, will not be treated as
investments in Municipal Securities for purposes of the 80% requirement
mentioned above with respect to the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond Funds and, under normal conditions, will not exceed 20%
of each such Fund's net 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 Funds are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of such private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
CUSTODIAL RECEIPTS AND CERTIFICATES OF PARTICIPATION
Securities acquired by the Institutional Money Market, Intermediate
Tax-Exempt Bond, Connecticut Intermediate Municipal Bond, Massachusetts
Intermediate Municipal Bond and Florida Municipal Bond Funds may be in the form
of custodial receipts evidencing rights to
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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, the Fund intends to exercise its
right to demand payment as needed to provide liquidity, to maintain or improve
the quality of its investment portfolio or upon a default (if permitted under
the terms of the instrument).
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund 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. 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 each Fund's 15% limit (10% with respect to the Institutional
Money Market and Institutional Treasury Money Market Funds) on illiquid
securities described below under "Investment Limitations."
The seller under a repurchase agreement will be required to maintain
the value of the securities which are subject to the agreement and held by a
Fund at not less than the agreed upon repurchase price. If the seller defaulted
on its repurchase obligation, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying securities
(including accrued interest) were less than the repurchase price (including
accrued interest) under the agreement. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such securities
by the Fund might be delayed pending court action. Income on repurchase
agreements is taxable. Investments by each of the Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond, Massachusetts Intermediate Municipal
Bond and Florida Municipal Bond Funds in repurchase agreements will be, under
normal market conditions, subject to each 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 agreement). Securities subject to a repurchase agreement will be held
by a Fund's custodian or sub-custodian in a segregated
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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 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.
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, 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
Each Fund may invest in securities issued by other investment
companies and foreign investment trusts. Each Fund may also invest up to 5%
of its total assets in closed-end investment companies that primarily hold
securities of non-U.S. issuers.
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
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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
Each Fund except the Institutional Money Market and Institutional
Treasury Money Market Funds may from time to time, in accordance with its
investment objective and policies, purchase certain "derivative" securities.
Derivative securities are instruments that derive their value from the
performance of underlying assets, interest or currency exchange rates, or
indices, and include, but are not limited to, municipal bond index futures,
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 to 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 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 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. Subject to applicable laws, each of the Funds may
enter into bond and interest rate futures contracts. The Funds intend to use
futures contracts only for bona fide hedging purposes. Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specified security at a specified future time and at a specified
price. A "sale" of a futures contract entails a contractual obligation to
deliver the underlying securities called for by the contract, and a "purchase"
of a futures contract entails a contractual obligation to acquire such
securities, in each case in accordance with the terms of the contract. Futures
contracts must be executed through a futures commission merchant, or
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brokerage firm, which is a member of an appropriate exchange designated as a
"contract market" by the Commodity Futures Trading Commission ("CFTC").
When a Fund purchases or sells a futures contract, Galaxy must allocate
assets of that Fund as an initial deposit on the contract. The initial deposit
may be as low as approximately 5% or less of the value of the contract. The
futures contract is marked to market daily thereafter and the Fund may be
required to pay or entitled to receive additional "variation margin," based on a
decrease or increase in the value of the futures contract.
Futures contracts call for the actual delivery or acquisition of
securities, or in the case of futures contracts based on indices, the making or
acceptance of a cash settlement at a specified future time; however, the
contractual obligation is usually fulfilled before the date specified in the
contract by closing out the futures contract position through the purchase or
sale, on a commodities exchange, of an identical futures contract. Positions in
futures contracts may be closed out only if a liquid secondary market for such
contract is available, and there can be no assurance that such a liquid
secondary market will exist for any particular futures contract.
A Fund's ability to hedge effectively through transactions in futures
contracts depends on, among other factors, Fleet's judgment as to the expected
price movements in the securities underlying the futures contracts. In addition,
it is possible in some circumstances that a Fund would have to sell securities
from its portfolio to meet "variation margin" requirements at a time when it may
be disadvantageous to do so.
OPTIONS. Each Fund may write covered call options from time to time on
its assets as determined by Fleet to be appropriate in seeking to achieve such
Fund's investment objective, provided that the aggregate value of such options
may not exceed 10% of such Fund's net assets as of the time such Fund enters
into such options. The Growth Fund II may write covered call options, for
hedging purposes and in order to generate additional income. The Intermediate
Tax-Exempt Bond, Connecticut Intermediate Municipal Bond, Massachusetts
Intermediate Municipal Bond and Florida Municipal Bond Funds may write covered
call options for hedging purposes only and will not engage in option writing
strategies for speculative purposes.
The purchaser of a call option has the right to buy, and the writer (in
this case a Fund) of a call option has the obligation to sell, an underlying
security at a specified exercise price during a specified option period. The
advantage to a Fund of writing covered calls is that the Fund receives a premium
for writing the call, which is additional income. However, if the security rises
in value and the call is exercised, the Fund may not participate fully in the
market appreciation of the security.
During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold,
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time at which the writer effects a closing purchase
transaction.
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A closing purchase transaction is one in which a Fund, when obligated
as a writer of an option, terminates its obligation by purchasing an option of
the same series as the option previously written. A closing purchase transaction
cannot be effected with respect to an option once the Fund writing the option
has received an exercise notice for such option. Closing purchase transactions
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 enable a Fund to write another call option on the
underlying security with either a different exercise price or different
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the net amount of the original
premium received on the call option is more or less than the cost of effecting
the closing purchase transaction. Any loss incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
sale of a different call option on the same underlying security. Such a loss may
also be wholly or partially offset by unrealized appreciation in the market
value of the underlying security. Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part by a decline in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid, even though, in economic terms, such gain may be offset by depreciation in
the market value of the underlying security during the option period. If a call
option is exercised, the Fund will realize a gain or loss from the sale of the
underlying security equal to the difference between (a) the Fund's tax basis in
the underlying security and (b) the proceeds of the sale of the security, plus
the amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price
of the underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.
Each of these Funds will write call options only on a covered basis,
which means that the Fund will own the underlying security subject to a call
option at all times during the option period. Unless a closing purchase
transaction is effected, the Fund would be required to continue to hold a
security which it might otherwise wish to sell, or deliver a security it would
want to hold. Options written by a Fund will normally have expiration dates
between one and nine months from the date written. The exercise price of a call
option may be below, equal to or above the current market value of the
underlying security at the time the option is written.
A Fund may also purchase put and call options. Put options are
purchased to hedge against a decline in the value of securities held in the
Fund's portfolio. If such a decline occurs, the put options will permit the Fund
to sell the securities underlying such options at the exercise price, or to
close out the options at a profit. The premium paid for a put or a call option
plus any transaction costs will reduce the benefit, if any, realized by the Fund
upon exercise of the option, and, unless the price of the underlying security
rises or declines sufficiently, the option may expire worthless to the Fund. In
addition, in the event that the price of the security in connection
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with which an option was purchased moves in a direction favorable to the Fund,
the benefits realized by the Fund as a result of such favorable movement will be
reduced by the amount of the premium paid for the option and related transaction
costs.
OPTIONS ON FUTURES CONTRACTS. The Funds may, subject to any applicable
laws, purchase and write options on futures contracts for hedging purposes only.
The holder of a call option on a futures contract has the right to purchase the
futures contract, and the holder of a put option on a futures contract has the
right to sell the futures contract, in either case at a fixed exercise price up
to a stated expiration date or, in the case of certain options, on a stated
date. Options on futures contracts, like futures contracts, are traded on
contract markets.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities deliverable on exercise
of the futures contract. A Fund will receive an option premium when it writes
the call, and, if the price of the futures contracts at expiration of the option
is below the option exercise price, the Fund will retain the full amount of this
option premium, which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. Similarly, the writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the securities deliverable upon exercise of the futures contract. If a
Fund writes an option on a futures contract and that option is exercised, the
Fund may incur a loss, which loss will be reduced by the amount of the option
premium received, less related transaction costs. A Fund's ability to hedge
effectively through transactions in options on futures contracts depends on,
among other factors, the degree of correlation between changes in the value of
securities held by the Fund and changes in the value of its futures positions.
This correlation cannot be expected to be exact, and the Fund bears a risk that
the value of the futures contract being hedged will not move in the same amount,
or even in the same direction, as the hedging instrument. Thus it may be
possible for a Fund to incur a loss on both the hedging instrument and the
futures contract being hedged.
The ability of a Fund to engage in options and futures strategies
depends also upon the availability of a liquid market for such instruments;
there can be no assurance that such a liquid market will exist for such
instruments.
OPTIONS ON STOCK INDICES. The Growth Fund II may engage in transactions
involving options on stock indices. A stock index assigns relative values to the
common stocks included in the index, and the index fluctuates with changes in
the market values of the underlying common stocks. The Fund will not engage in
transactions in options on stock indices for speculative purposes but only to
protect appreciation attained, to offset capital losses and to take advantage of
the liquidity available in the option markets. The aggregate premium paid on all
options on stock indices will not exceed 5% of the Fund's total assets.
Options on stock indices are similar to options on stocks but have
different delivery requirements. Stock options provide the right to take or make
delivery of the underlying stock at a specified price. A stock index option
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the amount 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
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underlying index on the date of exercise, multiplied by (ii) 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 amount of cash received will be equal to such difference between the closing
price of the index and exercise price of the option expressed in dollars times a
specified multiple. The writer of the option is obligated, in return for the
option premium received, to make delivery of this amount. Gain or loss to the
Fund on transactions in stock index options will depend on price movements in
the stock market generally (or in a particular industry or segment of the
market) rather than price movements of individual securities.
As with stock options, the Fund may offset its position in stock index
options prior to expiration by entering into a closing transaction on an
exchange or it may let the option expire unexercised.
A stock index fluctuates with changes in the market values of the stock
included in the index. Some stock index options are based on a broad market
index such as the Standard & Poor's 500 Index or the New York Stock Exchange
Composite Index, or a narrower market index such as the Standard & Poor's 100
Index. Indices are also based on an industry or market segment such as the AMEX
Oil and Gas Index or the Computer and Business Equipment Index. Options on stock
indices are currently traded on the following exchanges, among others: the
Chicago Board Options Exchange, the New York Stock Exchange and the American
Stock Exchange.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in options on stock indices depends on the
degree to which price movements in the underlying index correlate with price
movements in the securities held by the Fund. Since the Fund will not duplicate
all of the components of an index, the correlation will not be exact.
Consequently, the Fund bears the risk that the prices of the securities being
hedged will not move in the same amount as the hedging instrument. It is also
possible that there may be a negative correlation between the index or other
securities underlying the hedging instrument and the hedged securities which
would result in a loss on both such securities and the hedging instrument.
Positions in stock index options may be closed out only on an exchange
which provides a secondary market. There can be no assurance that a liquid
secondary market will exist for any particular stock index option. Thus, it may
not be possible to close such an option. The inability to close options
positions could have an adverse impact on the Fund's ability to effectively
hedge its securities. The Fund will enter into an option position only if there
appears to Fleet, at the time of investment, to be a liquid secondary market for
such options.
CURRENCY SWAPS. Each Fund may engage in currency swaps. Currency swaps
involve the exchange of rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of the entire principal
value of one designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. The use of currency swaps is a
highly
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specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If Fleet
is incorrect in its forecast of market values and currency exchange rates, the
investment performance of a Fund would be less favorable than it would have been
if this investment technique were not used.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Each Fund from time to time may
enter into foreign currency exchange transactions to convert the U.S. dollar to
foreign currencies, to convert foreign currencies to the U.S. dollar and to
convert foreign currencies to other foreign currencies. A Fund either enters
into these transactions on a spot (I.E., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or uses forward contracts to purchase
or sell foreign currencies. Forward foreign currency exchange contracts are
agreements to exchange one currency for another -- for example, to exchange a
certain amount of U.S. dollars for a certain amount of Japanese yen -- at a
future date, which may be any fixed number of days from the date of the
contract, and at a specified price. Typically, the other party to a currency
exchange contract will be a commercial bank or other financial institution. A
forward foreign currency exchange contract generally has no deposit requirement
and is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of a Fund's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities should decline.
Forward foreign currency exchange contracts also allow 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.
Each 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 a Fund's
investments, the Fund will establish with its custodian a segregated account
consisting of cash or other liquid assets equal in value to the fluctuating
market value of the currency as to which the short position is being maintained.
The value of the securities in the segregated account will be adjusted at least
daily to reflect changes in the market value of the short position.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency
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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 Fund 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 CONTINENTAL DEPOSITARY RECEIPTS
The Growth Fund II may invest in depositary receipts. American
Depositary Receipts ("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. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), 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. ADRs may be
listed on a national securities exchange or may be traded in the
over-the-counter market. EDRs and CDRs are designed for use in European exchange
and over-the-counter markets. ADRs, EDRs and CDRs 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 Fund's limitation with
respect to such securities. If the Fund invests in an unsponsored ADR, EDR or
CDR there may be less information available to the Fund concerning the issuer of
the securities underlying the unsponsored ADR, EDR or CDR than is available for
an issuer of securities underlying a sponsored ADR, EDR or CDR. ADR prices are
denominated in U.S. dollars although the underlying securities are denominated
in a foreign currency. Investments in ADRs, EDRs and CDRs involve risks similar
to those accompanying direct investments in foreign securities. Certain of these
risks are described above under "Special Risk Considerations -- Foreign
Securities."
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ASSET-BACKED SECURITIES
Each of the Funds except the Institutional Treasury 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. 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 valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
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MORTGAGE-BACKED SECURITIES
Each of the Funds may invest in mortgage-backed securities (including
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs")) 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 a Fund
purchases mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid. The yield of a Fund, should it invest in
mortgage-backed securities, may be affected by reinvestment of prepayments at
higher or lower rates than the original investment.
Each of the Funds, except for the Institutional Money Market Fund and
Institutional Treasury Money Market Fund, may also invest in mortgage-backed
securities not issued by governmental issuers which are rated in one of the top
three rating categories assigned by S&P, Moody's or Fitch IBCA, or if unrated,
determined by Fleet to be of comparable quality. 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.
CONVERTIBLE SECURITIES
Each Fund may from time to time, in accordance with its 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.
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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. The Fund will exchange or convert
the convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in Fleet's opinion, the investment
characteristics of the underlying common stock will assist the Fund in achieving
its investment objective. Otherwise, the 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.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENT TRANSACTIONS
Each Fund may purchase eligible securities on a "when-issued" basis.
Each Fund may also purchase or sell securities on a "forward commitment" 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. When-issued and forward
commitment 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 when-issued purchases and forward commitments will not exceed 25% of the
value of a Fund's total assets absent unusual market conditions. In the event a
Fund's when-issued purchases and forward commitments 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 and forward commitments for speculative purposes, but
only in furtherance of their investment objectives.
A Fund may dispose of a commitment prior to settlement if Fleet 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
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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 forward
commitment basis, the Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account. In the
event of a decline in the value of the securities that the custodian has set
aside, the Fund may be required to place additional assets in the separate
account in order to ensure that the value of the account remains equal to the
amount of the Fund's commitment. A Fund's net assets may fluctuate to a greater
degree if it sets aside portfolio securities to cover such purchase commitments
than if it sets aside cash. Because a Fund sets aside liquid assets to satisfy
its purchase commitments in the manner described, its liquidity and ability to
manage its portfolio might be adversely affected in the event its commitment to
purchase securities on a when-issued or forward commitment basis exceeded 25% of
the value of its assets.
When a Fund engages in when-issued or forward commitment 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.
GUARANTEED INVESTMENT CONTRACTS
The Funds may invest in guaranteed investment contracts ("GICs") issued
by 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' limitation on such investments,
unless there is an active and substantial secondary market for the particular
instrument and market quotations are readily available. No Fund will invest more
than 20% of its total assets in GICs.
COMMON AND PREFERRED STOCK
The Growth Fund II may invest in common and preferred stock. Common
stocks are generally more volatile than other securities. Preferred stocks share
some of the characteristics of both debt and equity investments and are
generally preferred over common stocks with respect to dividends and in
liquidation.
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LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by
the lending bank or agent for a syndicate of lending banks, and sold by the
lending bank or syndicate member. The Funds may only purchase interests in loan
participations issued by a bank in the United States with assets exceeding $1
billion and for which the underlying loan is issued by borrowers in whose
obligations the Funds may invest. Because the intermediary bank does not
guarantee a loan participation in any way, a loan participation is subject to
the credit risk generally associated with the underlying corporate borrower. In
addition, in the event the underlying corporate borrower defaults, a Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of the borrower. Under the terms of a loan participation, the
purchasing Fund may be regarded as a creditor of the intermediary bank so that
the Fund may also be subject to the risk that the issuing bank may become
insolvent.
STRIPS
Each of the Funds may invest in Separately Traded Interest and
Principal Securities ("STRIPS"), which are component parts of U.S. Treasury
Securities traded through the Federal Reserve Book-Entry System. Fleet will
purchase only those STRIPS that it determines are liquid or, if illiquid, do not
violate a Fund's investment policy concerning investments in illiquid
securities. With respect to the Institutional Money Market and Institutional
Treasury Money Market Funds, Fleet will purchase only those STRIPS that have a
remaining maturity of 397 days or less. Neither of these Funds may invest more
than 5% of its total assets in STRIPS. While there is no limitation on the
percentage of any other Fund's assets that may be invested in STRIPS, Fleet will
monitor the level of such holdings to avoid the risk of impairing shareholders'
redemption rights. The interest-only component of STRIPS is extremely sensitive
to the rate of principal payments on the underlying obligation. The market value
of the principal-only component generally is usually volatile in response to
changes in interest rates.
WARRANTS
A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specified amount of the corporation's capital
stock at a set price for a specified period of time. The Growth Fund II may
invest up to 5% of its net assets in warrants. Included in this limitation, but
not to exceed 2% of the Fund's net assets, may be warrants not listed on the New
York Stock Exchange or American Stock Exchange.
ZERO COUPON SECURITIES
Each Fund may invest in zero coupon securities. A zero coupon security
pays no interest or principal to its holder during its life. A zero coupon
security is sold at a discount, frequently substantial, and redeemed at face
value at its maturity date. The market prices of zero coupon securities are
generally more volatile than the market prices of securities of similar maturity
that
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pay interest periodically, and zero coupon securities are likely to react more
to interest rate changes than non-zero coupon securities with similar maturity
and credit qualities.
PORTFOLIO SECURITIES GENERALLY
Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Trustees or Fleet pursuant to guidelines
established by the Board, will promptly consider such an event in determining
whether the Fund involved should continue to hold the obligation. The Board of
Trustees or Fleet may determine that it is appropriate for the Fund to continue
to hold the obligation if retention is in accordance with the interests of the
particular Fund and applicable regulations of the Securities and Exchange
Commission ("SEC").
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 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 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 the construction of transportation equipment
(primarily aircraft engines, helicopters and submarines) being 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 16.92% of total non-agricultural employment in Connecticut in
1998. 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
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reductions in defense spending have considerably reduced this sector's
significance in Connecticut's economy.
The average annual unemployment rate in Connecticut increased from a
low of 3.6% in 1989 to a high of 7.6% in 1992 and, after a number of important
changes in the method of calculation, was reported to be 3.0% in 1999. Per
capita personal income of Connecticut residents increased in every year from
1990 to 1999, rising from $25,935 to $38,747. 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 eight fiscal years ended June 30,
1999, the General Fund recorded operating surpluses, based on Connecticut's
budgetary method of accounting. General Fund budgets adopted for the biennium
ending June 30, 2001, authorize expenditures of $10,581,600,000 for the
1999-2000 fiscal year and $11,085,200,000 for the 2000-2001 fiscal year and
project surpluses of $64,400,000 and $4,800,000, respectively, for those
years. As of March 31, 2000, the Comptroller estimated a surplus of
$247,700,000 for the 1999-2000 fiscal year.
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 January 1, 2000, the State had authorized direct
general obligation bond indebtedness totaling $13,310,385,000, of which
$11,338,459,000 had been approved for issuance by the State Bond Commission and
$9,872,122,000 had been issued. As of January 1, 2000, net State direct general
obligation indebtedness outstanding was $6,795,705,000.
In 1995, the State established the University of Connecticut as a
separate corporate entity to issue bonds and construct certain infrastructure
improvements. The University was authorized to issue bonds totaling $962,000,000
by June 30, 2005, that are secured by a State debt service commitment to finance
the improvements, $359,475,000 of which were outstanding on October 15, 1999.
Additional costs for the improvements, anticipated to be $288,000,000, are
expected to be funded from other sources.
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 been issued by the
cities of Bridgeport and West Haven and the Southeastern Connecticut Water
Authority. As of January 1, 2000, the amount of bonds outstanding on which the
State has limited or contingent liability totaled $4,315,600,000.
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, 2004, is currently estimated to
be $14.0 billion, to be met from federal, state, and local funds. The State
expects to finance most of its $5.5 billion share of such cost
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by issuing $5.0 billion of special tax obligation ("STO") bonds. The STO bonds
are payable solely from specific 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's general obligation bonds are rated Aa3 by Moody's and AA by
Fitch. On October 8, 1998, Standard & Poor's upgraded its ratings of the State's
general obligations bonds from AA- to AA.
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) 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 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; (ii) litigation involving claims by Indian tribes
to portions of the State's land area; (iii) 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; (iv) an action for money damages for the death of a young
physician killed in an automobile accident allegedly as a result of negligence
of the State; (v) actions by several hospitals claiming partial refunds of taxes
imposed on hospital gross earnings to the extent such taxes related to tangible
personal property transferred in the provision of services to patients; and (vi)
an action against the State and the Attorney General by importers and
distributors of cigarettes previously sold by their manufacturers seeking
damages and injunctive relief relating to business losses alleged to result from
the 1998 Master Settlement Agreement entered into by most states in litigation
against the major domestic tobacco companies and challenging certain related
so-called Non Participating Manufacturer statutes.
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
ordered the State to show cause as to whether there has been compliance with the
Supreme Court's ruling and concluded that the State had complied but that the
plaintiffs had not allowed the State sufficient time to take additional remedial
steps. Accordingly, the plaintiffs might be able to pursue their claim at a
later date. The fiscal impact of this matter might be significant but is not
determinable at this time.
The State's Department of Information Technology coordinated a review
of the State's Year 2000 exposure and completed its plans on a timely basis. As
of December 31, 1999, 99.5% of the testing cycles required to validate
compliance in mission critical systems had been completed. Nevertheless, there
is still a risk that testing for all failure scenarios did not reveal all
software or hardware problems or that systems of others on whom the
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State's systems or service commitments rely were not tested and remediated in a
timely fashion. If the necessary remediations were not adequately tested, 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, including the decline in Connecticut's manufacturing industry.
Certain Connecticut municipalities have experienced severe fiscal difficulties
and have reported operating and accumulated deficits. The most notable of these
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. Difficulties in payment
of debt service on borrowings could result in declines, possibly severe, 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.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL SECURITIES
The financial condition of the State of Florida may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities but also by entities that are not under the control of the
State. Adverse developments affecting the State's financing activities, its
agencies or its political subdivisions could adversely affect the State's
financial condition.
The State's revenues increased from $35,849,518,000 during the 1997-98
fiscal year ended June 30, 1998 to $37,080,673,000 during the fiscal year ended
June 30, 1999. The State's operating expenditures increased from $33,373,020,000
during the 1997-98 fiscal year ended June 30, 1998 to $35,095,057,000 during the
1998-99 fiscal year ended June 30, 1999. The Office of Economic and Demographic
Research of the Florida Legislature also projected non-agricultural jobs to grow
3.5% and 2.5% in fiscal years 1999-2000 and 2000-2001, respectively. The revenue
growth in the 1998-1999 fiscal year is driven by the State's sales tax
collections. The sales tax accounts for close to 60% of revenues from taxes for
the 1999 fiscal year. For the fiscal year ending June 30, 2000, the estimated
General Revenue and Working Capital plus Budget Stabilization funds are
$20,455.9 million, a
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4.4% increase over fiscal 1999. With combined General Revenue, Working Capital
Fund and Budget Stabilization Funds at $18,808.9 million, unencumbered reserves
at the end of fiscal 2000 are expected to be $1,707.1 million.
The Constitution of the State of Florida limits the right of the State
and its local governments to tax. The Constitution requires the State to have a
balanced budget and to raise revenues to defray its operating expenses. The
State may not borrow for the purpose of maintaining ordinary operating expenses,
but may generally borrow for capital improvements.
An amendment to the Florida Constitution adopted in 1994 requires that
state revenues in excess of an allowed amount plus a growth factor must be
contributed to a Budget Stabilization Fund until this fund reaches a certain
amount at which time the excess state revenues must be distributed to the
taxpayers. The growth factor is the average annual rate of growth in the state
personal income over the most recent 20 quarters times the amount of state
revenue allowed under the Constitution for the prior fiscal year. Included among
the categories of revenues that are exempt from this revenue limitation are
revenues pledged to state bonds and other payments related to debt. A two-thirds
vote of the Florida legislature can raise the amount of the limit on state
revenues. It is difficult to predict the impact of this amendment on Florida
state finances, especially since courts have not interpreted it extensively. To
the extent that local governments traditionally receive revenues from the state
which are subject to or limited by this Constitutional amendment, the further
distribution of such state revenues may be adversely impacted by the amendment.
There are a number of methods by which the State of Florida may incur
debt. The State may issue bonds backed by the State's full faith and credit to
finance or refinance certain capital projects authorized by its voters. The
total outstanding principal of State bonds pledging the full faith and credit of
the State may not exceed 50% of the total tax revenues of the State for the two
preceding fiscal years, excluding any tax revenues held in trust. The State also
may issue certain bonds backed by the State's full faith and credit to finance
or refinance pollution control, solid waste disposal and water facilities for
local governments; county roads; school districts and capital public education
projects without voter authorization. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State's authorities, agencies and instrumentalities. Payments of debt service on
State bonds backed by the State's full faith and credit and State-guaranteed
bonds and notes are legally enforceable obligations of the State. Revenue bonds
to finance or refinance certain capital projects also may be issued by the State
of Florida without voter authorization. However, revenue bonds are payable
solely from funds derived directly from sources other than state tax revenues.
The State of Florida currently imposes, among other taxes, an ad
valorem tax on intangible property and a corporate income tax. The Florida
Constitution prohibits the levying of a personal income tax. Certain other taxes
the State of Florida imposes include: an estate or inheritance tax which is
limited by the State's Constitution to an amount not in excess of the amount
allowed to be credited upon or deducted from federal estate taxes or the estate
taxes of another state; and a 6% sales tax on most goods and certain services
with an option for counties to impose up to an additional 1% sales tax on such
goods and services. In addition, counties
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chartered before June 1, 1976 or county with a consolidated county/municipal
government may assess up to a 1% discretionary sales surtax within the county
for the development, construction, maintenance and operation of a fixed guideway
rapid transit system.
The Constitution reserves the right to charge an ad valorem tax on real
estate and tangible personal property to Florida's local governments. All other
forms of taxation are preempted to the State of Florida except as may be
provided by general law. Motor vehicles, boats, airplanes, trailers, trailer
coaches and mobile homes, as defined by law, may be subject to a license tax for
their operation, but may not be subject to an ad valorem tax.
Under the Constitution, ad valorem taxes may not be levied in excess of
the following millage upon the assessed value of real estate and tangible
personal property: for all county purposes, ten mills; for all municipal
purposes, ten mills; for all school purposes, ten mills; for water management
purposes for the northwest portion of the State, .05 mills; for water management
purposes for the remaining portion of the State, one mill; and for all other
special districts a millage authorized by law and approved by referendum. When
authorized by referendum, the above millage caps may be exceeded for up to two
years. Counties, school districts, municipalities, special districts and local
governmental bodies with taxing powers may issue bonds to finance or refinance
capital projects payable from ad valorem taxes in excess of the above millage
cap when approved by referendum. It should be noted that several municipalities
and counties have charters that further limit either ad valorem taxes or the
millage that may be assessed.
The Florida legislature has passed a number of mandates which limit or
place requirements on local governments without providing the local governments
with compensating changes in their fiscal resources. The Florida legislature
enacted a comprehensive growth management act which forces local governments to
establish and implement comprehensive planning programs to guide and control
future development. This legislation prohibits public or private development
that does not conform with the locality's comprehensive plan. Local governments
may face greater requirements for services and capital expenditures than they
had previously experienced if their locality experiences increased growth or
development. The burden for funding these potential services and capital
expenditures which has been left to the local governments may be quite large.
The Florida Constitution limits the assessed value of homestead real
property for ad valorem tax purposes to the lower of (A) three percent (3%) of
the assessed value for the prior year; or (B) the percentage change in the
Consumer Price Index for the preceding calendar year. In addition, no such
assessed value shall exceed "just value" and such just value shall be reassessed
(notwithstanding the 3% cap) as of January 1 of the year following a change of
ownership of the assessed real property.
Florida has grown dramatically since 1980 and as of April 1, 1998
ranked fourth nationally with an estimated population of 15.0 million. Florida's
substantial population increases over the past few years are expected to
continue. It is anticipated that corresponding increases in State revenues will
be necessary during the next decade to meet increased burdens
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on the various public and social services provided by the State. Much of this
growth is being funded by bonded revenues secured by the expanding real property
tax base. As of 1998, real property values exceed $846 billion.
Florida's job market continues to reflect strong performance. The
state's February 2000 unemployment rate was 3.7%, 0.3 percentage points lower
than the year ago rate of 4.0% Florida's unemployment rate was one of the lowest
since October 1973 when it was 3.4%. The U.S. unemployment rate was 4.1%, just
above Florida's rate. With the exception of manufacturing, all major
nonagricultural industries posted over-the-year increases in employment. Among
the 5 most populous states, Florida was ranked first in over-the-year percentage
job growth, and second in the number of jobs added to nonagricultural payrolls.
Services, Florida's largest industry, grew by 7.5 percent over the year ended
February 29, 2000 and added the highest number of new jobs (+185,300). Trade
gained the second highest number of new jobs since a year ago (+40,800, +2.4
percent). Growth in construction continued to be strong at 3.8 percent, adding
13,600 jobs over the year. Government and finance, insurance, and real estate
experienced over-the-year increases of 18,100 jobs (+1.9 percent) and 12,000
jobs (+2.7 percent), respectively. Manufacturing continued to experience a net
loss of 2,900 jobs over the year. Major job losses occurred in apparel and other
textiles, printing and publishing, preserved fruits, and instruments related
products, totaling 4,200 jobs. Gains in other manufacturing sub-sectors were not
enough to offset the losses. The loss in apparel and textiles was mainly due to
foreign competition.
Reflecting population growth, Florida's total personal income has
increased at a faster rate than both the U.S. and other southeastern states.
Since 1989, Florida's per capita personal income has been consistently slightly
below that of the U.S. In 1998, it was 97.9% ($25,865) of the U.S. $26,412
average. Per capita income is often used to make comparisons between the states.
However, using personal income to compare Florida to other states is misleading
for several reasons. Current contributions by employers to pension plans are
included in personal income, but distributions from pension plans are excluded
to avoid double counting. Since Florida retirees are likely to be collecting
benefits earned in other states, Florida personal income is underestimated.
Retirees are more likely to own their own home and need less income to maintain
the same standard of living. Florida does not have a state income tax and many
areas of the state are relatively low cost places to live. For these reasons,
comparing Florida's per capita income with other areas may not provide an
accurate analysis. Furthermore, sources of personal income in Florida differ
from the southeast and other parts of the nation.
Because the State has a proportionately greater retirement age
population, property income (dividends, interest and rent) and transfer payments
(social security and pension benefits among other sources of income) are a
relatively more important source of income. Transfer payments, such as social
security, are occasionally subject to legislative change. A positive aspect of
greater reliance on property income and transfer payments is that they
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are less sensitive to the business cycle and may act as a stabilizing influence
in periods of economic weakness.
Tourism is one of Florida's most important industries. According to
Visit Florida (formerly the Florida Tourism Commission), about 48.7 million
people visited the State in 1999. Tourists to Florida effectively represent
additional residents, spending their dollars predominantly at eating and
drinking establishments, hotels and motels, and amusement and recreation parks.
Their expenditures generate additional business activity and State tax revenues.
The State's tourist industry over the years has become more sophisticated,
attracting visitors year-round, thus to a degree, reducing its seasonality.
The State also has a strong construction industry resulting from the
rapid growth of the State's population. While housing starts increased 11.1% in
1998, total housing starts are projected to slow over the next two years,
falling to 138,600 in 1999-2000 and 134,900 the following year.
Florida has experienced a diversifying economic base as technology
related industry, healthcare and financial services have grown into leading
elements of Florida's economy, complementing the State's previous reliance
primarily on agriculture and tourism. With the increasing costs and capital
needs related to its growing population, Florida's ability to meet its expenses
will be dependent in part upon the State's continued ability to foster business
and economic growth. Florida has also increased its funding of capital projects
through more frequent debt issuance rather than its historical pay-as-you go
method.
At the regional level, local economies within Florida perform
differently according to their urban or rural qualities and level of economic
diversification. The spectrum of local economies spans dense urban centers such
as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and
sugar cane production. For example, Central Florida is a premier world-class
resort/vacation destination with its economy driven by the presence of Disney
World, studio theme parks and other tourist oriented recreational parks with a
laser/optical research node and motion picture industries helping to diversify
the Central Florida local economy. In contrast to the highly urban areas of
Southeast Florida, North Florida and the Florida Panhandle are rural in many
areas with local economies is dominated by the logging and paper industries,
defense, tourism, state government and retirement.
Florida has a moderate debt burden. As of June 30, 1999 full faith and
credit bonds totaled $9.26 billion and revenue bonds totaled $7.34 billion for a
total debt of $16.6 billion. Full faith and credit debt per capita was $602. In
the 1999 fiscal year, debt service as a percent of Governmental Fund
expenditures was 2.46%. In recent years debt issuance for the State has been
increasing.
The payment on most Florida Municipal Securities held by the Florida
Municipal Bond Fund will depend upon the issuer's ability to meet its
obligations. If the State or any of its political subdivisions were to suffer
serious financial difficulties jeopardizing their ability to pay
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<PAGE>
their obligations, the marketability of obligations issued by the State or
localities within the State, and the value of the Florida Municipal Bond Fund's
portfolio, could be adversely affected.
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 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.
INVESTMENT LIMITATIONS
In addition to each Fund's investment objective as stated in the
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").
1. A Fund may not purchase any securities which would cause
more than 25% of the total assets of the Fund to be invested
in the securities of one or more issuers conducting their
principal business activities in the same industry. This
limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies
and instrumentalities and repurchase agreements involving
such securities and, for each of the Institutional Money
Market and Institutional Treasury Money Market Funds, to
investments in obligations issued by domestic banks, foreign
branches of domestic banks and U.S. branches of foreign
banks, to the extent that a Fund may under the 1940 Act
reserve freedom of action to concentrate its investments in
such securities. Each of the Institutional Money Market and
Institutional Treasury Money Market Funds has reserved its
freedom of action to concentrate its investments in
government securities and bank instruments described in the
foregoing sentence. This limitation also does not apply to
an investment of all of the investable assets of each of the
Institutional Money Market Fund, Florida Municipal Bond Fund
and Growth Fund II in a diversified, open-end management
investment company having the same investment objective and
policies and substantially the same investment restrictions
as those applicable to such Fund (in each case, a
"Qualifying Portfolio"). For purposes of this limitation,
(i) utility companies will be divided according to their
services; for example, gas, gas transmission, electric and
telephone
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<PAGE>
will each be considered a separate industry; (ii) financial
service companies will be classified according to the end
users of their services; for example, automobile finance,
bank finance and diversified finance will each be considered
a separate industry; (iii) suprantional entities will be
considered to be a separate industry; and (iv) loan
participations are considered to be issued by both the
issuing bank and the underlying corporate borrower.
2. A Fund may not make loans, except that a Fund may (a)
purchase or hold debt instruments in accordance with its
investment objective and policies; (b) enter into repurchase
agreements; and (c) engage in securities lending as
described in the Prospectuses and in this Statement of
Additional Information.
3. A Fund may not acquire more than 10% of the voting
securities of any one issuer (except securities issued or
guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements involving such
securities) or invest more than 5% of the total assets of
the Fund in the securities of an issuer (except securities
issued or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements involving such
securities); provided, that (a) the foregoing limitation
shall not apply to the Massachusetts Intermediate Municipal
Bond Fund, Connecticut Intermediate Municipal Bond Fund or
Florida Municipal Bond Fund; (b) the foregoing limitation
shall not apply to 25% of the total assets of each of the
Institutional Money Market Fund, Intermediate Tax-Exempt
Bond Fund and Growth Fund II; and (c) the foregoing
limitation shall not apply to an investment of all of the
investable assets of the Institutional Money Market Fund,
Florida Municipal Bond Fund or Growth Fund II in a
Qualifying Portfolio.
4. A Fund may not invest in companies for the purpose of
exercising control.
5. A Fund may not borrow, except that a Fund may borrow money
from banks and may enter into reverse repurchase agreements,
in either case in an amount not to exceed 33-1/3% of that
Fund's total assets and then only as a temporary measure for
extraordinary or emergency purposes (which may include the
need to meet shareholder redemption requests). This
borrowing provision is included solely to facilitate the
orderly sale of Fund securities to accommodate heavy
redemption requests if they should occur and is not for
investment purposes. A Fund will not purchase any securities
for its portfolio at any time at which its borrowings equal
or exceed 5% of its total assets (taken at market value),
and any interest paid on such borrowings will reduce income.
6. In the case of the Institutional Treasury Money Market Fund,
Intermediate Tax-Exempt Bond Fund and Massachusetts
Intermediate Municipal Bond
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<PAGE>
Fund, such a Fund may not pledge, mortgage or hypothecate
assets except to secure temporary borrowings permitted by
Investment Limitation No. 5 above in aggregate amounts not
to exceed 10% of total assets taken at current value at the
time of the incurrence of such loan, except as permitted
with respect to securities lending.
7. A Fund may not purchase or sell real estate, including real
estate limited partnership interests, commodities and
commodities contracts, but excluding interests in a pool of
securities that are secured by interests in real estate.
However, subject to its permitted investments, any Fund may
invest in companies which invest in real estate, commodities
or commodities contracts. Each of the Funds may invest in
futures contracts and options thereon to the extent
described in the Prospectuses and elsewhere in this
Statement of Additional Information.
8. A Fund may not make short sales of securities, maintain a
short position or purchase securities on margin, except that
the Funds may obtain short-term credits as necessary for the
clearance of security transactions.
9. A Fund may not act as underwriter of securities of other
issuers, except as it may be deemed an underwriter under
federal securities laws in selling a security held by the
Fund.
10. A Fund may not purchase securities of other investment
companies except as permitted by the 1940 Act and the rules
and regulations thereunder. Under these rules and
regulations, each of the Funds is prohibited, subject to
certain exceptions, from acquiring the securities of other
investment companies if, as a result of such acquisition,
(a) such Fund owns more than 3% of the total voting stock of
the company; (b) securities issued by any one investment
company represent more than 5% of the total assets of such
Fund; or (c) securities (other than treasury stock) issued
by all investment companies represent more than 10% of the
total assets of such Fund, provided, that with respect to
the Institutional Money Market Fund, Florida Municipal Bond
Fund and Growth Fund II, the limitations do not apply to an
investment of all of the investable assets of such Fund in a
Qualifying Portfolio. These investment companies typically
incur fees that are separate from those fees incurred
directly by a Fund. A Fund's purchase of such investment
company securities results in the layering of expenses, such
that shareholders would indirectly bear a proportionate
share of the operating expenses of such investment
companies, including advisory fees.
It is the position of the SEC's Staff that certain
non-governmental issuers of CMOs and REMICs constitute
investment companies pursuant to the 1940 Act and either (a)
investments in such instruments are subject to the
limitations set forth above or (b) the issuers of such
instruments have
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<PAGE>
received orders from the SEC exempting such instruments from
the definition of investment company.
11. A Fund may not issue senior securities (as defined in the
1940 Act) except in connection with permitted borrowings as
described above or as permitted by rule, regulation or order
of the SEC.
12. A Fund may not write or purchase puts, calls, or other
options or combinations thereof, except that each Fund may
write covered call options with respect to any or all of the
securities it holds, subject to any limitations described in
the Prospectuses or elsewhere in this Statement of
Additional Information and each Fund may purchase and sell
other options as described in the Prospectuses and this
Statement of Additional Information.
NON-FUNDAMENTAL POLICIES
The following policies are not fundamental and may be changed with
respect to any Fund without approval by the shareholders of that Fund:
No Fund may invest in warrants, except that the Growth Fund II may
invest in warrants in an amount not exceeding 5% of the Fund's net assets as
valued at the lower of cost or market value. Included in this amount, but not to
exceed 2% of the Fund's net assets, may be warrants not listed on the New York
Stock Exchange or the American Stock Exchange. This limitation does not apply to
warrants acquired in units or attached to securities. Such warrants may not be
listed on the New York Stock Exchange or American Stock Exchange.
No Fund may invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of that Fund's net assets (10% for the Institutional Money
Market Fund and Institutional Treasury Money Market Fund), provided that this
limitation does not apply to an investment of all of the investable assets of
the Institutional Money Market Fund, Florida Municipal Bond Fund and Growth Fund
II in a Qualifying Portfolio. The foregoing limitation does not apply to
restricted securities, including Section 4(2) paper and Rule 144A securities, if
it is determined by or under procedures established by the Board of Trustees of
Galaxy that, based on trading markets for the specific restricted security in
question, such security is not illiquid.
No Fund may purchase or retain securities of an issuer if, to the
knowledge of Galaxy, an officer, trustee, member or director of Galaxy or any
investment adviser of Galaxy owns beneficially more than 1/2 of 1% of the shares
or securities of such issuer and all such officers, trustees, members and
directors owning more than 1/2 of 1% of such shares or securities together own
more than 5% of such shares or securities.
No Fund may invest in interests in oil, gas or other mineral
exploration or development programs. No Fund may invest in oil, gas or mineral
leases.
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<PAGE>
No Fund may purchase securities of any company which has (with
predecessors) a record of less than 3 years continuing operations if as a result
more than 5% of total assets (taken at fair market value) of the Fund would be
invested in such securities, except that the foregoing limitation shall not
apply to (a) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (b) Municipal Securities which are rated by at
least one Rating Agency; or (c) an investment of all of the investable assets of
the Institutional Money Market Fund, Florida Municipal Bond Fund and Growth Fund
II in a Qualifying Portfolio.
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 of the Institutional Money Market and Institutional Treasury Money
Market Funds 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 Institutional Money Market Fund
is subject to the 5% limitation contained in Investment Limitation No. 3 above
as to all of its assets; however in accordance with such Rule, the Institutional
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. 3 above. Each of
the Institutional Money Market and Institutional Treasury Money Market Funds
will determine the effective maturity of its respective investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by 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.
The Institutional Money Market Fund and Growth Fund II may purchase
Rule 144A securities. Rule 144A under the 1933 Act allows for a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Investment by a Fund in Rule 144A securities
could have the effect of increasing the level of illiquidity of the Fund during
any period that qualified institutional buyers were no longer interested in
purchasing these securities.
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<PAGE>
VALUATION OF PORTFOLIO SECURITIES
VALUATION OF THE INSTITUTIONAL MONEY MARKET AND INSTITUTIONAL TREASURY MONEY
MARKET FUNDS
Galaxy uses the amortized cost method of valuation to value shares of
the Institutional Money Market and Institutional Treasury Money Market 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 the 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 neither 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 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.
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<PAGE>
VALUATION OF THE INTERMEDIATE TAX-EXEMPT BOND, CONNECTICUT INTERMEDIATE
MUNICIPAL BOND, MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND AND FLORIDA MUNICIPAL
BOND FUNDS
The assets of the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond Funds are valued for purposes of pricing sales and
redemptions by an independent pricing service ("Service") approved by Galaxy's
Board of Trustees. When, in the judgment of the Service, quoted bid prices for
portfolio securities are readily available and are representative of the bid
side of the market, these investments are valued at the mean between quoted bid
prices (as obtained by the Service from dealers in such securities) and asked
prices (as calculated by the Service based upon its evaluation of the market for
such securities). Other investments are carried at fair value as determined by
the Service, based on methods which include consideration of yields or prices of
bonds of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. The Service may also employ
electronic data processing techniques and matrix systems to determine value.
Short-term securities are valued at amortized cost, which approximates market
value. The amortized cost method involves valuing a security at its cost on the
date of purchase and thereafter assuming a constant amortization to maturity of
the difference between the principal amount due at maturity and cost.
VALUATION OF THE GROWTH FUND II
In determining market value, the assets of the Growth Fund II 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. 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. 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.
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.
Certain of the securities acquired by the Growth Fund II may be traded
on foreign exchanges or over-the-counter markets on days on which the Fund's net
asset value is not
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<PAGE>
calculated. In such cases, the net asset value of the Fund's shares may be
significantly affected on days when investors can neither purchase nor redeem
shares of the Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund are sold on a continuous basis by Galaxy's
distributor, Provident Distributors, Inc. ("PDI"). PDI is a registered
broker/dealer with its principal offices at 3200 Horizon Drive, King of Prussia,
Pennsylvania, 19406. PDI has agreed to use appropriate efforts to solicit all
purchase orders.
Trust Shares, Shares and/or BKB Shares of the Funds will initially be
issued in connection with the Reorganization. Following the Reorganization, BKB
Shares will be available for purchase only by those shareholders who received
BKB Shares in the Reorganization. BKB Shares of a Fund will convert to Retail A
Shares of the same Fund on the first anniversary of the Reorganization, provided
that prior thereto the Board of Trustees of Galaxy has determined that such
conversion is in the best interests of holders of BKB Shares.
PURCHASES OF RETAIL A SHARES, RETAIL B SHARES AND BKB 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 Growth Fund II 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 Growth Fund II.
There is no sales charge when shareholders acquire BKB Shares in
connection with the Reorganization, when shareholders buy additional BKB Shares
or when BKB Shares convert to Retail A Shares.
PDI has established several procedures to enable different types of
investors to purchase Retail A Shares, Retail B Shares and BKB Shares of the
Funds. Retail A Shares and Retail B 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 A Shares and
Retail B Shares may also be purchased by FIS Securities, Inc., Fleet Securities,
Inc., Fleet Enterprises, Inc., FleetBoston Financial Corporation, its
affiliates, their correspondent banks and other qualified banks, savings and
loan associations and broker/dealers on behalf of their customers. BKB Shares of
the Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate Municipal Bond
Fund, Massachusetts Intermediate Municipal Bond Fund and Growth Fund II are only
available for purchase by those shareholders who received BKB Shares in
connection with the Reorganization. Purchases may take place only on days on
which the New York Stock Exchange (the "Exchange") is open for business
("Business Days"). If an
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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 PDI on a
Business Day in accordance with PDI's procedures.
CUSTOMERS OF INSTITUTIONS
Retail A Shares and Retail B Shares purchased by institutions on behalf
of their customers will normally be held of record by the institution and
beneficial ownership of Retail A Shares and/or Retail B 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 A Shares
and/or Retail B Shares. Depending on the terms of the arrangement between a
particular institution and Galaxy's transfer agent, confirmations of Retail A
Share and/or Retail B 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 A Shares and Retail
B Shares established by institutions in connection with the requirements of
their customer accounts may apply. Customers wishing to purchase Retail A Shares
and/or Retail B Shares through their institution should contact such entity
directly for appropriate purchase instructions.
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 PDI to
broker-dealer organizations which have entered into agreements with PDI. The
reallowance to dealers may be changed from time to time.
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<PAGE>
Certain affiliates of Fleet may, at their own expense, provide
additional compensation to broker-dealer affiliates of Fleet and to other
unaffiliated broker-dealers whose customers purchase significant amounts of
Retail A Shares 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 Fleet's affiliates.
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 PDI pertaining to the sale of Retail A
Shares to the extent permitted by such organizations;
- purchases by current and retired members of Galaxy's Board of
Trustees and members of their immediate families;
- purchases by officers, directors, employees and retirees of
FleetBoston Financial Corporation and any of its affiliates and
members of their immediate families;
- purchases by officers, directors, employees and retirees of PFPC
Inc. and members of their immediate families;
- 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
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<PAGE>
- purchases prior to July 1, 1999 by former deposit customers of
financial institutions (other than registered broker-dealers)
acquired by FleetBoston Financial Corporation in February 1998.
COMPUTATION OF OFFERING PRICE - RETAIL A SHARES
A hypothetical illustration of the computation of the offering price
per share of Retail A Shares of the Funds, using the value of each Predecessor
Fund's net assets and the number of outstanding shares of each Predecessor Fund
at the close of business on November 30, 1999 and the maximum front-end sales
charge of 3.75%, is as follows:
<TABLE>
<CAPTION>
Connecticut
Intermediate Intermediate
Tax-Exempt Municipal
Bond Fund Bond Fund
--------- ---------
<S> <C> <C>
Net Assets........................................... $345,162,065 $178,270,083
Outstanding Shares................................... 35,356,203 17,500,165
Net Asset Value Per Share............................ $9.76 $10.19
Sales Charge (3.75% of
the offering price).................................. $0.38 $0.38
Offering Price to Public............................. $10.14 $10.56
<CAPTION>
Massachusetts
Intermediate Municipal Growth
Bond Fund Fund II
--------- -------
<S> <C> <C>
Net Assets........................................... $252,068,397 $249,395,920
Outstanding Shares................................... 25,287,707 15,491,744
Net Asset Value Per Share............................ $9.97 $16.10
Sales Charge (3.75% of
the offering price).................................. $0.38 $0.23
Offering Price to Public............................. $10.35 $16.33
</TABLE>
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QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
In order to obtain quantity discount benefits, an investor must notify
PDI at the time of purchase that he or she would like to take advantage of any
of the discount plans described below. Upon such notification, the investor will
receive the lowest applicable sales charge. Quantity discounts may be modified
or terminated at any time and are subject to confirmation of an investor's
holdings through a check of appropriate records. For more information about
quantity discounts, please contact PDI or your financial institution.
RIGHTS OF ACCUMULATION. A reduced sales charge applies to any purchase
of Retail A Shares of any portfolio of Galaxy that is sold with a sales charge
("Eligible Fund") where an investor's then current aggregate investment in
Retail A Shares is $50,000 or more. "Aggregate investment" means the total of:
(a) the dollar amount of the then current purchase of shares of an Eligible
Fund; and (b) the value (based on current net asset value) of previously
purchased and beneficially owned shares of any Eligible Fund on which a sales
charge has been paid. If, for example, an investor beneficially owns shares of
one or more Eligible Funds with an aggregate current value of $49,000 on which a
sales charge has been paid and subsequently purchases shares of an Eligible Fund
having a current value of $1,000, the sales charge applicable to the subsequent
purchase would be reduced to 3.50% of the offering price. Similarly, with
respect to each subsequent investment, all shares of Eligible Funds that are
beneficially owned by the investor at the time of investment may be combined to
determine the applicable sales charge.
LETTER OF INTENT. By completing the Letter of Intent included as part
of the Account Application, an investor becomes eligible for the reduced sales
charge applicable to the total number of Eligible Fund Retail A Shares purchased
in a 13-month period pursuant to the terms and under the conditions set forth
below and in the Letter of Intent. To compute the applicable sales charge, the
offering price of Retail A Shares of an Eligible Fund on which a sales charge
has been paid and that are beneficially owned by an investor on the date of
submission of the Letter of Intent may be used as a credit toward completion of
the Letter of Intent. However, the reduced sales charge will be applied only to
new purchases.
PFPC Inc. ("PFPC"), Galaxy's administrator, will hold in escrow Retail
A Shares equal to 5% of the amount indicated in the Letter of Intent for payment
of a higher sales charge if an investor does not purchase the full amount
indicated in the Letter of Intent. The escrow will be released when the investor
fulfills the terms of the Letter of Intent by purchasing the specified amount.
If purchases qualify for a further sales charge reduction, the sales charge will
be adjusted to reflect the investor's total purchases. If total purchases are
less than the amount specified, the investor will be requested to remit an
amount equal to the difference between the sales charge actually paid and the
sales charge applicable to the total purchases. If such remittance is not
received within 20 days, PFPC, as attorney-in-fact pursuant to the terms of the
Letter of Intent and at PDI's direction, will redeem an appropriate number of
Retail A Shares
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held in escrow to realize the difference. Signing a Letter of Intent does not
bind an investor to purchase the full amount indicated at the sales charge in
effect at the time of signing, but an investor must complete the intended
purchase in accordance with the terms of the Letter of Intent to obtain the
reduced sales charge. To apply, an investor must indicate his or her intention
to do so under a Letter of Intent at the time of purchase.
QUALIFICATION FOR DISCOUNTS. For purposes of applying the Rights of
Accumulation and Letter of Intent privileges described above, the scale of sales
charges applies to the combined purchases made by any individual and/or spouse
purchasing securities for his, her or their own account or for the account of
any minor children, or the aggregate investments of a trustee or custodian of
any qualified pension or profit-sharing plan established (or the aggregate
investment of a trustee or other fiduciary) for the benefit of the persons
listed above.
REINSTATEMENT PRIVILEGE. Investors may reinvest all or any portion of
their redemption proceeds in Retail A Shares of the Funds or in Retail A Shares
of another portfolio of Galaxy within 90 days of the redemption trade date
without paying a sales load. Retail A Shares so reinvested will be purchased at
a price equal to the net asset value next determined after Galaxy's transfer
agent receives a reinstatement request and payment in proper form.
Investors wishing to exercise this Privilege must submit a written
reinstatement request to PFPC as transfer agent stating that the investor is
eligible to use the Privilege. The reinstatement request and payment must be
received within 90 days of the trade date of the redemption. Currently, there
are no restrictions on the number of times an investor may use this Privilege.
Generally, exercising the Reinstatement Privilege will not affect the
character of any gain or loss realized on redemptions for federal income tax
purposes. However, if a redemption results in a loss, the reinstatement may
result in the loss being disallowed under the Code's "wash sale" rules.
GROUP SALES. Members of qualified groups may purchase Retail A Shares
of the Funds at the following group sales rates:
<TABLE>
<CAPTION>
REALLOWANCE
TOTAL SALES CHARGE TO DEALERS
------------------------------------- ----------
AS A % OF AS A % OF AS A % OF
NUMBER OF QUALIFIED OFFERING PRICE NET ASSET VALUE OFFERING PRICE
GROUP MEMBERS PER SHARE PER SHARE PER SHARE
--------------------- --------- --------- ---------
<S> <C> <C> <C>
50,000 but less than 250,000.................... 3.00 3.09 3.00
250,000 but less than 500,000................... 2.75 2.83 2.75
500,000 but less than 750,000................... 2.50 2.56 2.50
750,000 and over................................ 2.00 2.04 2.00
</TABLE>
To be eligible for the discount, a group must meet the requirements set
forth below and be approved in advance as a qualified group by PDI. To receive
the group sales charge rate,
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group members must purchase Retail A Shares directly from PDI in accordance with
any of the procedures described in the Prospectus. Group members must also
ensure that their qualified group affiliation is identified on the purchase
application.
A qualified group is a group that (i) has at least 50,000 members, (ii)
was not formed for the purpose of buying Fund shares at a reduced sales charge,
(iii) within one year of the initial member purchase, has at least 1% of its
members invested in the Funds or any of the other investment portfolios offered
by Galaxy, (iv) agrees to include Galaxy sales material in publications and
mailings to members at a reduced cost or no cost, and (v) meets certain other
uniform criteria. PDI may request periodic certification of group and member
eligibility. PDI reserves the right to determine whether a group qualifies for a
quantity discount and to suspend this offer at any time.
APPLICABLE SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares of the Growth Fund II 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 PDI
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 broker-dealer affiliates of Fleet and to
unaffiliated broker-dealers 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 PDI, 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
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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 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 of
the Growth Fund II 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
of the Fund are the same.
Retail A Shares of the Growth Fund II 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 the Fund are currently subject to ongoing shareholder servicing fees
at an annual rate of up to 0.30% of the Fund's average daily net assets
attributable to its Retail A Shares.
Retail B Shares of the Growth Fund II 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 0.95% 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 PDI 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
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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 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 Growth Fund II 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
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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 the 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 SHARES OF THE INSTITUTIONAL MONEY MARKET FUND
AND INSTITUTIONAL TREASURY MONEY MARKET FUND
Investments in Shares of the Institutional Money Market Fund and
Institutional Treasury Money Market Fund (referred to in the Prospectus for the
Funds as Trust Shares) are not subject to any sales charge. Shares of the
Institutional Money Market Fund and Institutional Treasury Money Market Fund may
be purchased by FIS Securities, Inc., Fleet Securities, Inc., Fleet Enterprises,
Inc., FleetBoston Financial Corporation, its affiliates, their correspondent
banks and other qualified banks, saving and loan associations and broker/dealers
on behalf of their customers. Purchases of Shares may take place only on
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 PDI on a Business Day in accordance with PDI's procedures.
Shares of the Institutional Money Market Fund and Institutional
Treasury Money Market Fund purchased by institutions on behalf of their
customers will normally be held of record by the institution and beneficial
ownership of such Shares will be recorded by the institution and reflected in
the account statements provided to its customers. Depending on the terms of the
arrangement between a particular institution and Galaxy's transfer agent,
confirmations of 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 Shares established by
institutions in connection with the requirements of their customer accounts may
apply. Customers wishing to purchase Shares through their institution should
contact such entity directly for appropriate purchase instructions.
PURCHASES OF TRUST SHARES AND SHARES OF THE FLORIDA MUNICIPAL BOND FUND
Trust Shares and Shares of the Florida Municipal Bond Fund (referred to
in the Prospectus for the Fund as Trust Shares) are sold to investors
maintaining qualified accounts at bank and trust institutions, including
subsidiaries of FleetBoston Corporation, and to participants in
employer-sponsored defined contribution plans (such institutions and plans
referred to herein collectively as "Institutions"). Trust Shares and Shares of
the Florida Municipal Bond Fund sold to such investors ("Customers") will be
held of record by Institutions. Purchases of Trust Shares
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and Shares of the Florida Municipal Bond Fund will be effected only on days on
which PDI, 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 PDI on a Trust Business Day in accordance
with the foregoing procedures.
OTHER PURCHASE INFORMATION
On a Business Day or 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 Business
Day or Trust Business Day.
REDEMPTIONS
Redemption orders are effected at the net asset value per share next
determined after receipt of the order by PDI. 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 redemptions of Retail B
Shares of the Growth Fund II 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. However, Galaxy has filed an election with the SEC to pay in cash all
redemptions requested by a shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the
beginning of such period. Such commitment cannot be revoked without the prior
approval of the SEC.
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.
With respect to Shares of the Institutional Money Market Fund and
Institutional Treasury Money Market Fund, 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,
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Galaxy may redeem shares involuntarily or make payment for redemption in
securities if it appears appropriate to do so in light of Galaxy's
responsibilities under the 1940 Act.
INVESTOR PROGRAMS
The following information supplements the description in the applicable
Prospectuses as to various Investor Programs available to holders of Retail A
Shares, Retail B Shares and BKB Shares and Shares of the Institutional Money
Market and Institutional Treasury Money Market Funds.
EXCHANGE PRIVILEGE -- RETAIL A SHARES, RETAIL B SHARES AND BKB SHARES AND SHARES
OF THE INSTITUTIONAL MONEY MARKET AND INSTITUTIONAL TREASURY MONEY MARKET FUNDS
The minimum initial investment to establish an account in another Fund
or portfolio by exchange, except for the Institutional Money Market Fund and
Institutional Treasury Money Market Fund, is $2,500, unless (i) the Retail A
Shares, Retail B Shares or BKB Shares being redeemed were purchased through a
registered representative who is a Fleet Bank employee, in which event there is
no minimum investment requirement, or (ii) at the time of the exchange the
investor elects, with respect to the Fund or portfolio into which the exchange
is being made, to participate in Galaxy's Automatic Investment Program, in which
event there is no minimum initial investment requirement, or in Galaxy's College
Investment Program, in which event the minimum initial investment is generally
$100. The minimum initial investment to establish an account by exchange in the
Institutional Money Market Fund and Institutional Treasury Money Market Fund is
$2 million.
An exchange involves a redemption of all or a portion of the Retail A
Shares, Retail B Shares, BKB Shares or Shares of a Fund and the investment of
the redemption proceeds in Retail A Shares, Retail B Shares, BKB Shares or
Shares of another Fund or, in the case of Retail A Shares and Shares of the
Institutional Money Market and Institutional Treasury Money Market Funds,
another portfolio offered by Galaxy or 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 per share net asset value next
determined after acceptance of the exchange request, plus any applicable sales
charge.
Investors may find the exchange privilege useful if their investment
objectives or market outlook should change after they invest in any of the
Funds. For further information regarding Galaxy's exchange privilege, investors
should call PFPC, Galaxy's transfer agent, at 1-877-BUY-GALAXY (1-877-289-4252).
Customers of institutions should call their institution for such information.
Investors exercising the exchange privilege into other portfolios should request
and review these portfolios' prospectuses prior to making an exchange. Telephone
1-877-BUY-GALAXY (1-877-289-4252) for a prospectus or to make an exchange.
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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 A Shares, Retail B Shares and BKB Shares of the Growth Fund II
are available for purchase in connection with the following tax-deferred
prototype retirement plans:
INDIVIDUAL RETIREMENT ARRANGEMENTS ("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.
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.
Detailed information concerning eligibility and other matters related
to these plans and the form of application is available from PDI (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 A SHARES,
RETAIL B SHARES AND BKB SHARES
The Automatic Investment Program permits an investor to purchase Retail A
Shares, Retail B Shares or BKB Shares of a Fund each month or each quarter.
Provided an investor's financial institution allows automatic withdrawals,
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 A Shares, Retail
B Shares or BKB 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 A Shares, Retail B Shares or BKB 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 PFPC, 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 of the Growth Fund II 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.
PAYROLL DEDUCTION PROGRAM -- RETAIL A SHARES, RETAIL B SHARES AND BKB SHARES
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 A Shares, Retail B Shares or BKB 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
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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 -- RETAIL A SHARES, RETAIL B SHARES AND BKB 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 PDI (call 1-877-BUY-GALAXY (1-877-289-4252)).
DIRECT DEPOSIT PROGRAM -- RETAIL A SHARES, RETAIL B SHARES AND BKB 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
IN GENERAL
Each Fund qualified during its last taxable year and intends to continue to
qualify as a regulated investment company under Subchapter M of the Code and to
distribute out its income to shareholders each year, so that each Fund itself
generally will be relieved of federal income and excise taxes. If a Fund were to
fail to so qualify: (1) the Fund would be taxed on its taxable income at regular
corporate rates without any deduction for distributions to shareholders; and (2)
shareholders would be taxed as if they received ordinary dividends, although
corporate shareholders could be eligible for the dividends received deduction.
Moreover, if a Fund were to fail to make sufficient distributions in a year, the
Fund would be subject to corporate income taxes and/or excise taxes in respect
of the shortfall or, if the shortfall is large enough, the Fund could be
disqualified as a regulated investment company.
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
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or dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Funds on December
31 of such year if such dividends are actually paid during January of the
following year.
It is the policy of each of the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond Funds to pay dividends with respect to each taxable year
equal to at least the sum of 90% of its net exempt-interest income and 90% of
its investment company taxable income, if any. Dividends derived from
exempt-interest income ("exempt-interest dividends") may be treated by a Fund's
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code unless, under the circumstances applicable to a
particular shareholder, exclusion would be disallowed.
An investment in any one Fund is not intended to constitute a balanced
investment program. Shares of the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond 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 Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond 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 Intermediate Tax-Exempt Bond, Connecticut Intermediate
Municipal Bond, Massachusetts Intermediate Municipal Bond and Florida Municipal
Bond 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
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<PAGE>
received by the Fund over any amounts disallowed as deductions under Section 265
and 171(a)(2) of the Code. The percentage of total dividends paid by a Fund with
respect to any taxable year that qualifies as federal exempt-interest dividends
will be the same for all shareholders receiving dividends from the Fund for such
year.
STATE AND LOCAL
Exempt-interest dividends and other distributions paid by the Intermediate
Tax-Exempt Bond, Connecticut Intermediate Municipal Bond, Massachusetts
Intermediate Municipal Bond and Florida Municipal Bond 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 Intermediate 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 Intermediate 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 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
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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
issued 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 Intermediate 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 State of Florida does not currently impose an income tax on
individuals. Thus, individual shareholders of the Florida Municipal Bond Fund
will not be subject to any Florida income tax on distributions received from the
Fund. However, Florida does currently impose an income tax on certain
corporations. Consequently, distributions may be taxable to corporate
shareholders.
The State of Florida currently imposes an "intangibles tax" at the annual
rate of 2 mills or 0.20% on certain securities and other intangible assets owned
by Florida residents. Every natural person is entitled to an exemption of the
first $20,000 of the value of taxable property against the first mill of the
annual tax. Spouses filing jointly are entitled to a $40,000 exemption. With
respect to the last half (0.5) mill, natural persons are entitled to an
exemption of the first $100,000 of otherwise taxable property (joint filers are
entitled to a $200,000 exemption). Taxpayers are limited to only one exemption
for the first mill and one exemption for the last half (0.5) mill. Notes, bonds
and other obligations issued by the State of Florida or its municipalities,
counties, and other taxing districts, or by the United States Government, its
agencies and certain U.S. territories and possessions (such as Guam, Puerto Rico
and the Virgin Islands) as well as cash are exempt from this intangibles tax. If
on December 31 of any year at least 90% of the net asset value of the portfolio
of the Florida Municipal Bond Fund consists solely of such exempt assets, then
the Fund's shares will be exempt from the Florida intangibles tax payable in the
following year.
In order to take advantage of the exemption from the intangibles tax in any
year, it may be necessary for the Fund to sell some of its non-exempt assets
held in its portfolio during the year and reinvest the proceeds in exempt assets
including cash prior to December 31. Transaction costs involved in restructuring
the portfolio in this fashion would likely reduce the
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Fund's investment return and might exceed any increased investment return the
Fund achieved by investing in non-exempt assets during the year.
Outside the State of Florida, income distributions 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 or 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.
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.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
The tax principles applicable to certain financial instruments and futures
contracts and options that may be acquired by the Funds are complex and, in some
cases, uncertain. Such investments may cause a Fund to recognize taxable income
prior to the receipt of cash, thereby requiring the Fund to liquidate other
positions, or to borrow money, so as to make sufficient distributions to
shareholders to avoid corporate-level tax. Moreover, some or all of the taxable
income recognized may be ordinary income or short-term capital gain, so that the
distributions may be taxable to shareholders as ordinary income.
Generally, futures contracts and options on futures contracts held by the
Funds (as described above) (collectively, the "Instruments") at the close of
their taxable year are treated for federal income tax purposes as sold for their
fair market value on the last business day of such year, a 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
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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 Connecticut Intermediate
Municipal Bond, Massachusetts Municipal Bond and Florida Municipal Bond Funds,
Connecticut personal income tax, Massachusetts personal income tax and Florida
intangible personal property 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:
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATION
WITH THE DURING PAST 5 YEARS
NAME AND ADDRESS AND AGE GALAXY FUND AND OTHER AFFILIATIONS
------------------------ ----------- ----------------------
<S> <C> <C>
Dwight E. Vicks, Jr. Chairman & Trustee President & Director, Vicks Lithograph &
Vicks Lithograph & Printing Corporation (book manufacturing
Printing Corporation and commercial printing); Director, Utica
Commercial Drive First Insurance Company; Trustee, Savings
P.O. Box 270 Bank of Utica; Director, Monitor Life
Yorkville, NY 13495 Insurance Company; Director, Commercial
Age 66 Travelers Mutual Insurance Company;
Trustee, The Galaxy VIP Fund; Trustee,
Galaxy Fund II.
John T. O'Neill(1) President, Treasurer Private Investor; Executive Vice President
28 Narragansett Bay Avenue & Trustee and CFO, Hasbro, Inc. (toy and game
Warwick, RI 02889 manufacturer until December 1999); Trustee,
Age 55 The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
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<PAGE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATION
WITH THE DURING PAST 5 YEARS
NAME AND ADDRESS AND AGE GALAXY FUND AND OTHER AFFILIATIONS
------------------------ ----------- ----------------------
<S> <C> <C>
Louis DeThomasis Trustee President, Saint Mary's College of
Saint Mary's College Minnesota; Director, Bright Day Travel,
of Minnesota Inc.; Trustee, Religious Communities Trust;
Winona, MN 55987 Trustee, The Galaxy VIP Fund; Trustee,
Age 59 Galaxy Fund II.
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast
10725 Quail Covey Road services); Director/Trustee, Lexington
Boynton Beach, FL 33436 Funds; Chairman, Executive Committee,
Age 74 Compton International, Inc. (advertising
agency); Trustee, Keuka College; Trustee,
The Galaxy VIP Fund; Trustee, Galaxy Fund
II.
James M. Seed Trustee Chairman and President, The Astra Projects,
The Astra Ventures, Inc. Incorporated (land development); President,
One Citizens Plaza The Astra Ventures, Incorporated
Providence, RI 02903 (previously, Buffinton Box Company -
Age 59 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 and
2468 Ohio Street Director, Acadia Management Company
Bangor, ME 04401 (investment services); Director, Essex
Age 69 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.
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<PAGE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATION
WITH THE DURING PAST 5 YEARS
NAME AND ADDRESS AND AGE GALAXY FUND AND OTHER AFFILIATIONS
------------------------ ----------- ----------------------
<S> <C> <C>
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
Jylanne Dunne Vice President and Vice President, PFPC Inc., 1990 to present.
PFPC Inc. Assistant Treasurer
4400 Computer Drive
Westborough, MA 01581-5108
Age 41
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice
PFPC Inc. President and Division Manager, PFPC Inc.,
4400 Computer Drive 1996 to present.
Westborough, MA 01581-5108
Age 46
</TABLE>
--------------------------------
(1) May be deemed to be an "interested person" within the definition set forth
in Section 2(a)(19) of the 1940 Act.
Effective May 28, 1999, each trustee receives an annual aggregate fee of
$45,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II ("Galaxy II") (collectively, the "Trusts"), plus an
additional $3,500 for each in-person Galaxy Board meeting attended and $1,500
for each in-person Galaxy VIP or Galaxy II Board meeting attended not held
concurrently with an in-person Galaxy meeting, and is reimbursed for expenses
incurred in attending all meetings. Each trustee also receives $750 for each
telephone Board meeting in which the trustee participates, $1,000 for each
in-person Board committee meeting attended and $500 for each telephone Board
committee meeting in which the trustee participates. The Chairman of the Boards
of the Trusts is entitled to an additional annual aggregate fee in the amount of
$4,000, and the President and Treasurer of the Trusts is entitled to an
additional annual aggregate fee of $2,500 for their services in these respective
capacities. The foregoing trustees' and officers' fees are allocated among the
portfolios of the Trusts based on their relative net assets. Prior to May 28,
1999, each Trustee was entitled to receive an annual aggregate fee of $40,000
for his services as a Trustee of the Trusts, plus an additional $2,500 for each
in-person Galaxy Board meeting attended, with all other fees being as those
currently in effect.
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<PAGE>
Effective March 1, 1996, each trustee became entitled to participate in
The Galaxy Fund, The Galaxy VIP Fund and Galaxy Fund II Deferred Compensation
Plans (the "Original Plans"). Effective January 1, 1997, the Original Plans were
merged into The Galaxy Fund/The Galaxy VIP Fund/Galaxy Fund II Deferred
Compensation Plan (together with the Original Plans, the "Plan"). Under the
Plan, a trustee may elect to have his deferred fees treated as if they had been
invested by the Trusts in the shares of one or more portfolios in the Trusts, or
other types of investment options, and the amount paid to the trustees under the
Plan will be determined based upon the performance of such investments. Deferral
of trustees' fees will have no effect on a portfolio's assets, liabilities, and
net income per share, and will not obligate the Trusts to retain the services of
any trustee or obligate a portfolio to any level of compensation to the trustee.
The Trusts may invest in underlying securities without shareholder approval.
No employee of PFPC receives any compensation from Galaxy for acting as
an officer. No person who is an officer, director or employee of Fleet, or 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.
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<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT TOTAL COMPENSATION
BENEFITS ACCRUED FROM GALAXY AND FUND
AGGREGATE COMPENSATION AS PART OF FUND COMPLEX *PAID TO
NAME OF PERSON/POSITION from GALAXY EXPENSES TRUSTEES
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bradford S. Wellman $39,355 None $55,750
Trustee
---------------------------------------------------------------------------------------------------------
Dwight E. Vicks, Jr.
Chairman and Trustee $42,875 None $60,500
---------------------------------------------------------------------------------------------------------
Donald B. Miller**
Trustee $40,042 None $56,500
---------------------------------------------------------------------------------------------------------
Rev. Louis DeThomasis
Trustee $37,643 None $53,250
---------------------------------------------------------------------------------------------------------
John T. O'Neill
President, Treasurer $41,813 None $59,000
and Trustee
---------------------------------------------------------------------------------------------------------
James M. Seed**
Trustee $39,355 None $55,750
---------------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------
* The "Fund Complex" consists of Galaxy, The Galaxy VIP Fund and Galaxy Fund
II, which comprised a total of 43 separate portfolios as of October 31,
1999.
** Deferred compensation (including interest) in the amounts of $43,939 and
$65,944 accrued during Galaxy's fiscal year ended October 31, 1999 for
Messrs. Miller and Seed, respectively.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, Galaxy's Declaration of Trust provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
Galaxy, and that every note, bond, contract, order or other undertaking made by
Galaxy shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Declaration of Trust provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder and not
because of his or her acts or omissions outside such capacity or some other
reason. The Declaration of Trust also provides that Galaxy shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Galaxy, and shall satisfy any judgment thereon. Thus, the risk of
shareholder liability is limited to circumstances in which Galaxy itself would
be unable to meet its obligations.
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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 (i) with respect to the Money Market Funds, 0.20% of the average daily net
assets of each Fund; and (ii) with respect to the Intermediate Tax-Exempt Bond
Fund, Connecticut Intermediate Municipal Bond Fund, Massachusetts Intermediate
Municipal Bond Fund, Florida Municipal Bond Fund and Growth Fund II, 0.75% of
each Fund's average daily net assets.
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
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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.
Prior to the Reorganization, each Predecessor Fund was advised by
BankBoston N.A. ("BankBoston"). BankBoston was a wholly-owned subsidiary of
BankBoston Corporation. On October 1, 1999, BankBoston Corporation merged into
Fleet Financial Group, Inc. to form FleetBoston Financial Corporation (the
"Holding Company Merger"). As a result of the Holding Company Merger, BankBoston
is now a subsidiary of FleetBoston Financial Corporation and an affiliate of the
Adviser.
BankBoston served as investment adviser to each Predecessor Fund
pursuant to an investment advisory agreement dated June 1, 1993 (the "Prior
Agreement"). Pursuant to the terms of the Prior Agreement, BankBoston was
entitled to receive fees, accrued daily and paid monthly, at the following
annual rates: (i) with respect to the Institutional Money Market Fund and
Institutional Treasury Money Market Fund, 0.20% of the average daily net assets
of each Fund; and (ii) with respect to the Intermediate Tax-Exempt Bond Fund,
Connecticut Intermediate Municipal Bond Fund, Massachusetts Intermediate
Municipal Bond Fund, Florida Municipal Bond Fund and Growth Fund II, 0.74% of
the average daily net assets of each Fund. In addition, BankBoston agreed to
waive investment advisory fees and/or reimburse expenses to help the Predecessor
Funds maintain competitive expense ratios.
During the last three fiscal years, each Predecessor Fund paid advisory
fees (net of fee waivers and/or expense reimbursements) to BankBoston as set
forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
1999 1998 1997
FUND (THOUSANDS) (THOUSANDS) (THOUSANDS)
---- ----------- ----------- -----------
<S> <C> <C> <C>
Institutional Money Market Fund $760 $46 --(1)
Institutional Treasury Money Market Fund $8,329 $6,468 $3,052
Intermediate Tax-Exempt Bond Fund $2,241 $1,877 $1,387
Connecticut Intermediate Municipal Bond Fund $1,139 $764 $573
Massachusetts Intermediate Municipal Bond Fund $1,574 $1,162 $768
Florida Municipal Bond Fund $380 $267 --(1)
Growth Fund II $1,455 $2,110 $1,050
</TABLE>
---------------
(1) The Predecessor Fund did not conduct operations during the period indicated.
ADMINISTRATOR
PFPC, Inc. ("PFPC") (formerly known as First Data Investor Services
Group, Inc.), located at 4400 Computer Drive, Westborough, Massachusetts
01581-5108, serves as the Funds' administrator. PFPC is a majority-owned
subsidiary of PNC Financial Services Group.
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PFPC generally assists the Funds in their administration and operation.
PFPC also serves as administrator to the other portfolios of Galaxy. For the
services provided to the Funds, PFPC is entitled to receive administration fees
based on the combined average daily net assets of the Funds and the other
portfolios offered by Galaxy, computed daily and paid monthly, 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%
From $5 to $12 billion...................... 0.075%
From $12 to $15 billion..................... 0.065%
From $15 to $18 billion..................... 0.060%
From $18 to $21 billion..................... 0.0575%
Over $21 billion............................ 0.0525%
</TABLE>
In addition, PFPC also receives a separate annual fee from each Galaxy portfolio
for certain fund accounting services. From time to time, PFPC may waive
voluntarily all or a portion of the administration fees payable to it by the
Funds.
Under the Administration Agreement between Galaxy and PFPC (the
"Administration Agreement"), PFPC has agreed to maintain office facilities for
Galaxy, furnish Galaxy with statistical and research data, clerical, accounting,
and bookkeeping services, certain other services such as internal auditing
services required by Galaxy, and compute the net asset value and net income of
the Funds. PFPC prepares the Funds' annual and semi-annual reports to the SEC,
federal and state tax returns, and filings with state securities commissions,
arranges for and bears the cost of processing share purchase and redemption
orders, maintains the Funds' financial accounts and records, and generally
assists in all aspects of Galaxy's operations. Unless otherwise terminated, the
Administration Agreement will remain in effect until May 31, 2001 and thereafter
will continue from year to year upon annual approval of Galaxy's Board of
Trustees.
Prior to the Reorganization, SEI Investments Mutual Funds Services ("SEI")
served as the administrator to the Predecessor Funds. For its services, SEI
received a fee calculated daily and paid monthly, at an annual rate of 0.085% of
the first $5 billion of the Predecessor Funds' combined average daily net assets
and 0.045% of combined average daily net assets in excess of $5 billion. SEI
also agreed to waive portions of its fees from time to time.
During the last three fiscal years, SEI received administration fees, net
of fee waivers, as set forth below:
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<PAGE>
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
1999 1998 1997
FUND (THOUSANDS) (THOUSANDS) (THOUSANDS)
---- ----------- ----------- -----------
<S> <C> <C> <C>
Institutional Money Market Fund $327 $79 $N/A
Institutional Treasury Money Market Fund $2,779 $2,303 $1,394
Intermediate Tax-Exempt Bond Fund $218 $200 $205
Connecticut Intermediate Municipal Bond Fund $113 $84 $37
Florida Municipal Bond Fund $39 $31 $N/A
Massachusetts Intermediate Municipal Bond Fund $156 $127 $116
Growth Fund II $131 $204 $96
</TABLE>
CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase Manhattan"), located at One Chase
Manhattan Plaza, New York, New York 10081, a wholly-owned subsidiary of The
Chase Manhattan Corporation, serves as the custodian of the Funds' assets
pursuant to a Global Custody Agreement. Chase Manhattan may employ
sub-custodians for the Funds for the purpose of providing custodial services for
the Funds' foreign assets held outside the United States.
Under the Global Custody Agreement, Chase Manhattan has agreed to: (i)
maintain a separate account or accounts in the name of each Fund; (ii) hold and
disburse portfolio securities on account of each Fund; (iii) collect and make
disbursements of money on behalf of each Fund; (iv) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (v) respond to correspondence from security brokers and others
relating to its duties; and (vi) make periodic reports to the Board of Trustees
concerning the Funds' operations. Chase Manhattan is authorized to select one or
more banks or trust companies to serve as sub-custodian for the Funds, provided
that Chase Manhattan shall remain responsible for the performance of all of its
duties under the custodian agreement and shall be liable to the Funds for any
loss which shall occur as a result of the failure of a sub-custodian to exercise
reasonable care with respect to the safekeeping of the Funds' assets. In
addition, Chase Manhattan also serves as Galaxy's "foreign custody manager" (as
that term is defined in Rule 17f-5 under the 1940 Act) and in such capacity
employs sub-custodians for the Funds for the purpose of providing custodial
services for the foreign assets of those Funds held outside the U.S. The assets
of the Funds are held under bank custodianship in compliance with the 1940 Act.
PFPC serves as the Funds' transfer and dividend disbursing agent pursuant
to a Transfer Agency and Services Agreement (the "Transfer Agency Agreement").
Communications to PFPC should be directed to PFPC at P.O. Box 5108, 4400
Computer Drive, Westborough, Massachusetts 01581. Under the Transfer Agency
Agreement, PFPC has agreed to: (i) issue and redeem shares of each Fund; (ii)
transmit all communications by each Fund to its shareholders of record,
including reports to shareholders, dividend and distribution notices and proxy
materials for meetings of shareholders; (iii) respond to correspondence by
security brokers and others relating to its duties; (iv) maintain shareholder
accounts; and (v) make periodic reports to the Board of Trustees concerning
Galaxy's operations.
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PFPC 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 Growth Fund II 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 PFPC for the
Sub-Account Services and in connection therewith the transfer agency fees
payable by Trust Shares of the Growth Fund II to PFPC have been increased by an
amount equal to these fees. In substance, therefore, the holders of Trust Shares
of this Fund indirectly bears these fees.
Fleet Bank, an affiliate of Fleet, is paid a fee for Sub-Account Services
performed with respect to Trust Shares of the Growth Fund II held by defined
contribution plans. Pursuant to an agreement between Fleet Bank and PFPC, Fleet
Bank is paid $21.00 per year for each defined contribution plan participant
account. PFPC bears this expense directly, and shareholders of Trust Shares of
the Growth Fund II bear this expense indirectly through fees paid to PFPC for
transfer agency services.
EXPENSES
Fleet and PFPC bear all expenses in connection with the performance of
their services for the Funds, except that Galaxy bears the expenses incurred in
the Funds' operations including: taxes; interest; fees (including fees paid to
its trustees and officers who are not affiliated with PFPC); SEC fees; state
securities fees; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; advisory,
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 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 may, in its discretion, effect transactions in
portfolio securities with dealers who provide research advice or other services
to the Funds or Fleet. Fleet 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 determines in good faith that such commission was
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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'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 are
not reduced by reason of receiving such brokerage and research services. The
Board of Trustees will periodically review the commissions paid by the Funds to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits inuring to the Funds.
During the fiscal year ended May 31, 1999, the Predecessor Fund of the
Growth Fund II paid soft dollar commissions in the amount of $199,396.
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 Predecessor Fund of the Growth Fund II paid brokerage commissions as
shown in the table below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
FUND 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Growth Fund II $199,396 $227,975 $163,411
</TABLE>
The Funds may effect 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.
Debt securities purchased or sold by the Institutional Money Market,
Institutional Treasury Money Market, Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond Funds are generally traded in over-the-counter market on
a net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. The cost of securities
purchased from underwriters includes an underwriting commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealers' mark-up or mark-down.
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<PAGE>
Each Fund may engage in short-term trading to achieve its investment
objective. Portfolio turnover may vary greatly from year to year as well as
within a particular year. The Institutional Money Market and Institutional
Treasury Money Market Funds do not intend to seek profits from short-term
trading. Their annual portfolio turnover will be relatively high, but since
brokerage commissions are normally not paid on money market instruments, it
should not have a material effect on the net income of any of these Funds.
Except as permitted by the SEC or applicable law, the Funds will not acquire
portfolio securities from, make savings deposits in, enter into repurchase or
reverse repurchase agreements with, or sell securities to, Fleet, PFPC, or their
affiliates, and will not give preference to affiliates and correspondent banks
of Fleet with respect to such transactions.
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 PLANS
RETAIL A SHARES
Galaxy has adopted a Shareholder Services Plan (the "Retail A Plan")
pursuant to which it intends to enter into servicing agreements with
institutions (including Fleet Bank and its affiliates). Pursuant to these
servicing agreements, institutions render certain shareholder liaison and/or
administrative support services to customers who are the beneficial owners of
Retail A Shares. Such services are provided to customers who are the beneficial
owners of Retail A Shares and are intended to supplement the services provided
by PFPC as administrator and transfer agent to the shareholders of record of
Retail A Shares. The Retail A Plan provides that Galaxy will pay fees for such
services at the following annual rates: (i) with respect to the Intermediate
Tax-Exempt Bond, Connecticut Intermediate Municipal Bond and Massachusetts
Intermediate Municipal Bond, up to 0.30% of the average daily net asset value of
Retail A Shares owned beneficially by customers; and (ii) with respect to the
Growth Fund II, up to 0.50% 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: (i) aggregating and processing purchase and redemption requests and
placing net purchase and redemption orders with PDI; (ii) processing dividend
payments
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<PAGE>
from a Fund; (iii) providing sub-accounting with respect to Retail A Shares or
the information necessary for sub-accounting; and (iv) 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: (i)
providing customers with information as to their positions in Retail A Shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Retail A Shares.
Although the Retail A Plan has been approved with respect to Retail A
Shares and Trust Shares of the Funds, as of the date of this Statement of
Additional Information, Galaxy intends to enter into servicing agreements under
the Retail A Plan only with respect to Retail A Shares of each Fund, and to
limit the payments under these servicing agreements for each Fund to an
aggregate fee of not more than: (i) with respect to the Intermediate Tax-Exempt
Bond, Connecticut Intermediate Municipal Bond and Massachusetts Intermediate
Municipal Bond Funds, up to 0.15% of the average daily net asset value of Retail
A Shares owned beneficially by customers of institutions; and (ii) with respect
to the Growth Fund II, up to 0.30% of the average daily net asset value of
Retail A Shares owned beneficially 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 Retail A 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.
Each servicing agreement between Galaxy and an institution ("Service
Organization") relating to the Retail A Plan requires that, with respect to
those Funds which declare dividends on a daily basis, the Service Organization
agrees to waive a portion of the servicing fee payable to it under the Retail A
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.
Galaxy's servicing agreements are governed by the Retail A Plan that has
been adopted by Galaxy's Board of Trustees in connection with the offering of
Retail A Shares of each Fund. Pursuant to the Retail A Plan, the Board of
Trustees reviews, at least quarterly, a written report of the amounts paid under
the servicing agreements and the purposes for which the expenditures were made.
In addition, the arrangements with Service Organizations must be approved
annually by a majority of Galaxy's trustees, including a majority of the
trustees who are not "interested persons" of Galaxy as defined in the 1940 Act
and who have no direct or indirect financial interest in such arrangements (the
"Disinterested Trustees").
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
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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.
BKB SHARES
Galaxy has adopted a separate Shareholder Services Plan (the "BKB Plan")
pursuant to which it intends to enter into servicing agreements with
institutions (including Fleet Bank and its affiliates). Pursuant to these
servicing agreements, institutions render certain shareholder liaison and/or
administrative support services to customers who are the beneficial owners of
BKB Shares. Such services are provided to customers who are the beneficial
owners of BKB Shares and are intended to supplement the services provided by
PFPC as administrator and transfer agent to the shareholders of record of BKB
Shares. The BKB Plan provides that Galaxy will pay fees for such services at the
following annual rates: (i) with respect to the Intermediate Tax-Exempt Bond,
Connecticut Intermediate Municipal Bond and Massachusetts Intermediate Municipal
Bond Funds, up to 0.30% of the average daily net asset value of BKB Shares owned
beneficially by customers; and (ii) with respect to the Growth Fund II, up to
0.50% of the average daily net asset value of BKB Shares owned beneficially by
customers. Institutions may receive up to one-half of this fee for providing one
or more of the following services to such customers: (i) aggregating and
processing purchase and redemption requests and placing net purchase and
redemption orders with PDI; (ii) processing dividend payments from a Fund; (iii)
providing sub-accounting with respect to BKB Shares or the information necessary
for sub-accounting; and (iv) 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: (i) providing customers
with information as to their positions in BKB Shares; (ii) responding to
customer inquiries; and (iii) providing a service to invest the assets of
customers in BKB Shares.
Galaxy intends to limit the payment under any servicing agreements for each
Fund to an aggregate annual fee of not more than: (i) with respect to the
Intermediate Tax-Exempt Bond, Connecticut Intermediate Municipal Bond and
Massachusetts Intermediate Municipal Bond Funds, 0.15% of the average daily net
asset value of the BKB Shares of each Fund beneficially owned by customers of
institutions; and (ii) with respect to the Growth Fund II, 0.30% of the average
daily net asset value of the BKB Shares of the Fund beneficially owned by
customers of institutions. Galaxy understands that institutions may charge fees
to their customers who are the beneficial owners of BKB Shares in connection
with their accounts with such institutions. Any such fees would be in addition
to any amounts which may be received by an institution under the BKB Plan. Under
the terms of each servicing agreement entered into with Galaxy, institutions are
required to provide to their customers a schedule of any fees that they may
charge in connection with customer investments in BKB Shares.
Each servicing agreement between Galaxy and an institution ("Service
Organization") relating to the BKB 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 BKB Plan to the
extent necessary to ensure that the fees required to be accrued with
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respect to the BKB Shares of such Funds on any day do not exceed the income to
be accrued to such BKB Shares on that day.
Galaxy's servicing agreements are governed by the BKB Plan that has been
adopted by Galaxy's Board of Trustees in connection with the offering of BKB
Shares of each Fund. Pursuant to the BKB Plan, the Board of Trustees reviews, at
least quarterly, a written report of the amounts paid under the servicing
agreements and the purposes for which the expenditures were made. In addition,
the arrangements with Service Organizations must be approved annually by a
majority of Galaxy's trustees, including a majority of the Disinterested
Trustees.
The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of BKB
Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
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 Growth
Fund II (the "12b-1 Plan"). Under the 12b-1 Plan, Galaxy may pay (a) PDI 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 0.65% 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 0.25% and
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0.25%, 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
Fund's payments for shareholder liaison and administrative support services
under the 12b-1 Plan to an aggregate fee of not more than 0.30% (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 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.
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 an institution ("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 PDI 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
PDI serves as Galaxy's distributor. PDI is a registered broker-dealer with
principal offices located at 3200 Horizon Drive, King of Prussia, Pennsylvania,
19406. Jane Haegele is the sole shareholder of PDI.
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Unless otherwise terminated, the Distribution Agreement between Galaxy
and PDI remains in effect until November 1, 2000, and thereafter will continue
from year to year upon annual approval by Galaxy's Board of Trustees, or by the
vote of a majority of the outstanding shares of Galaxy and by the vote of a
majority of the Board of Trustees of Galaxy who are not parties to the Agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. The Agreement will terminate in the
event of its assignment, as defined in the 1940 Act.
AUDITORS
Ernst & Young, LLP, independent auditors, with offices at 200 Clarendon
Street, Boston, Massachusetts 02110, serve as auditors for Galaxy. Prior to the
Reorganization, PricewaterhouseCoopers, LLP, with offices at 2400 Eleven Penn
Center, Philadelphia, PA 19103, served as independent auditors for the
Predecessor Funds. The financial highlights for the Predecessor Funds for each
of the years or periods in the five-year period ended May 31, 1999 included in
the Prospectuses and the financial statements contained in the Predecessor
Funds' Annual Reports to Shareholders dated May 31, 1999 and incorporated by
reference into this Statement of Additional Information have been audited by
PricewaterhouseCoopers, LLP.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary of
Galaxy, is a partner), One Logan Square, 18th and Cherry Streets, Philadelphia,
Pennsylvania 19103, are counsel to Galaxy and will pass upon certain legal
matters on its behalf. The law firm of Day, Berry & Howard LLP, 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 Intermediate 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 to Galaxy and has reviewed the portion of this Statement
of Additional Information and the Prospectuses with respect to the Massachusetts
Intermediate Municipal Bond Fund concerning Massachusetts taxes and the
description of special considerations relating to Massachusetts Municipal
Securities. The law firm of McGuire Woods Battle & Boothe, LLP, 3300 Barnett
Center, 50 North Laura Street, Jacksonville, Florida 32202 serves as special
Florida counsel to Galaxy and has reviewed the portion of this Statement of
Additional Information and the Prospectuses with respect to the Florida
Municipal Bond Fund concerning Florida taxes and the description of special
considerations relating to Florida Municipal Securities.
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CODES OF ETHICS
Galaxy and Fleet have adopted codes of ethics pursuant to Rule 17j-1
under the 1940 Act that permit investment personnel subject to their particular
codes of ethics to invest in securities, including securities that may be
purchased or held by the Fund, for their own accounts. The codes of ethics are
on public file with, and are available from, the Securities and Exchange
Commission's Public Reference Room in Washington, D.C.
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PERFORMANCE AND YIELD INFORMATION
INSTITUTIONAL MONEY MARKET AND INSTITUTIONAL TREASURY MONEY MARKET FUNDS
The standardized annualized seven-day yields for the Institutional Money
Market and Institutional Treasury Money Market 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.
The current yields for the Funds may be obtained by calling PDI at
1-877-BUY-GALAXY (1-877-289-4252).
Prior to the Reorganization, the Predecessor Funds to the Institutional
Money Market Fund and Institutional Treasury Money Market Fund offered a single
class of shares. For the seven-day period ended November 30, 1999, the
annualized yield and effective yield of the Predecessor Funds were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
ANNUALIZED EFFECTIVE
FUND YIELD YIELD
-------------------------------------------------------------------------------
<S> <C> <C>
Institutional Money Market
Fund
5.31% 5.45%
-------------------------------------------------------------------------------
Institutional Treasury Money
Market Fund
5.27% 5.41%
-------------------------------------------------------------------------------
</TABLE>
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INTERMEDIATE TAX-EXEMPT BOND FUND, CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND,
MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND, FLORIDA MUNICIPAL BOND FUND AND
GROWTH FUND II
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 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).
-86-
<PAGE>
With respect to mortgage or other receivables-backed obligations that are
expected to be subject to monthly payments of principal and interest
("pay-downs"), (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period,
and (ii) each Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.
Each Fund may also advertise its "effective yield" which is calculated
similarly but when annualized, the income earned by an investment in the Fund is
assumed to be reinvested.
Interest earned on tax-exempt obligations that are issued without original
issue discount and have a current market discount is calculated by using the
coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
The "tax-equivalent" yield of the Intermediate Tax-Exempt Bond, Connecticut
Intermediate Municipal Bond, Massachusetts Intermediate Municipal Bond and
Florida Municipal Bond Funds is computed by (a) dividing the portion of the
Fund's yield (calculated as above) that is exempt from both federal and state
income taxes by one minus a stated combined federal and state income tax rate;
(b) dividing the portion of the Fund's yield (calculated as above) that is
exempt from federal income tax only by one minus a stated federal income tax
rate; and (c) adding the figures resulting from (a) and (b) above to that
portion if any, of the yield that is not exempt from federal income tax.
Prior to the Reorganization, the Predecessor Funds offered one series of
shares. The following are the standard yields and tax equivalent yields for the
Predecessor Funds' shares for the 30-day period ended November 30, 1999:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
STANDARD TAX-EQUIVALENT
FUND YIELD YIELD
-------------------------------------------------------------------------------
<S> <C> <C>
Intermediate Tax-Exempt
Bond Fund
4.68% 7.75%
-------------------------------------------------------------------------------
Connecticut Intermediate
Municipal Bond Fund 4.61% 7.99%
-------------------------------------------------------------------------------
-87-
<PAGE>
-------------------------------------------------------------------------------
Massachusetts Intermediate Municipal
Bond Fund 4.60% 8.09%
-------------------------------------------------------------------------------
Florida Municipal Bond Fund 4.58% 7.78%
-------------------------------------------------------------------------------
Growth Fund II N/A N/A
-------------------------------------------------------------------------------
</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:
1/n
T = [(ERV/P) - 1]
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV/P) - l]
The calculations are made assuming that (1) all dividends and capital
gain distributions are reinvested on the reinvestment dates at the price per
share existing on the reinvestment date, (2) all recurring fees charged to all
shareholder accounts are included, and (3) for any account fees that vary with
the size of the account, a mean (or median) account size in the Fund during the
periods is reflected. The ending redeemable value (variable "ERV" in the
formula) is determined by assuming complete redemption of the hypothetical
investment after deduction of all nonrecurring charges at the end of the
measuring period.
Prior to the Reorganization, the Predecessor Funds offered one series
of shares. The following are the aggregate annual returns for shares of the
Predecessor Funds from the date of each Fund's initial public offering through
November 30, 1999:
-88-
<PAGE>
<TABLE>
<CAPTION>
FUND
<S> <C>
Intermediate Tax-Exempt Bond Fund 39.65%(1)
Connecticut Intermediate Municipal Bond Fund 33.94%(2)
Massachusetts Intermediate Municipal Bond Fund 35.03%(1)
Florida Municipal Bond Fund 9.54%(3)
Growth Fund II 90.74%(4)
</TABLE>
-89-
<PAGE>
------------------
(1) For the period from June 14, 1993 (initial public offering date) through
November 30, 1999.
(2) For the period from August 1, 1994 (initial public offering date) through
November 30, 1999.
(3) For the period from June 30, 1997 (initial public offering date) through
November 30, 1999.
(4) For the period from March 28, 1996 (initial public offering date) through
November 30, 1999.
The average annual total returns for shares of the Predecessor Funds for the
one-year and five-year periods ended November 30, 1999 are as follows:
<TABLE>
<CAPTION>
ONE FIVE
FUND YEAR YEAR
---- ---- ----
<S> <C> <C>
Intermediate Tax-Exempt Bond Fund -1.88% 6.61%
Connecticut Intermediate Municipal Bond Fund -1.81% 6.59%
Massachusetts Intermediate Municipal Bond Fund -1.19% 6.40%
Florida Municipal Bond Fund -1.92% N/A
Growth Fund II 58.20% N/A
</TABLE>
TAX-EQUIVALENCY TABLES - CONNECTICUT INTERMEDIATE MUNICIPAL BOND, MASSACHUSETTS
INTERMEDIATE MUNICIPAL BOND AND FLORIDA MUNICIPAL BOND FUNDS
The Connecticut Intermediate Municipal Bond, Massachusetts Intermediate
Municipal Bond and Florida Municipal Bond Funds may use tax-equivalency tables
in advertising and sales literature. The interest earned by the Municipal
Securities in the respective portfolios generally remains free from federal
regular income tax and, in the case of the Connecticut Intermediate Municipal
Bond Fund and Massachusetts Intermediate Municipal Bond Fund, from the regular
personal income tax imposed by Connecticut and Massachusetts. Some portion of
each 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, 2000. These are not indicators of past
or future performance of the Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond and Florida Municipal Bond Funds.
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent for each chart. 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 or the possible partial
disallowance of deductions. The Florida tax-equivalency table does not take into
account savings realized by investors due to the exemption from Florida personal
intangible property tax for investments in the Florida Municipal Bond Fund.
-90-
<PAGE>
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.
-91-
<PAGE>
CONNECTICUT: 2000
Equivalency yields: Tax-Exempt
<TABLE>
<CAPTION>
Combined Connecticut Tax-Equivalent Yields**
$Taxable Income* State Federal Effective --------------------------------------------------------------------------------
Single Rate Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-26,250 3.96% 15% 18.37% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.96% 8.58% 9.19% 9.80%
26,251-63,550 4.50% 28% 31.24% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45% 10.18% 10.91% 11.63%
63,551-132,600 4.50% 31% 34.11% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86% 10.62% 11.38% 12.14%
132,601-288,350 4.50% 36% 38.88% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63% 11.45% 12.27% 13.09%
Over 288,350 4.50% 39.6% 42.32% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54% 10.40% 11.27% 12.14% 13.00% 13.87%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
$Taxable Income* Combined Connecticut Tax-Equivalent Yields**
Married Filing State Federal Effective --------------------------------------------------------------------------------
Jointly Rate Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-43,850 3.825% 15% 18.25% 3.67% 4.28% 4.89% 5.50% 6.12% 6.73% 7.34% 7.95% 8.56% 9.17% 9.79%
43,851-105,950 4.50% 28% 31.24% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00% 8.73% 9.45% 10.18% 10.91% 11.63%
105,951-161,450 4.50% 31% 34.11% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35% 9.11% 9.86% 10.62% 11.38% 12.14%
161,451-288,350 4.50% 36% 38.88% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00% 9.82% 10.63% 11.45% 12.27% 13.09%
Over 288,350 4.50% 39.6% 42.32% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54% 10.40% 11.27% 12.14% 13.00% 13.87%
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income for Connecticut tax purposes is the
same as defined in the Internal Revenue Code. In fact, however, Connecticut
taxable income may differ due to differences in exemptions, itemized
deductions or other items.
** Each entry represents the taxable yield that is the equivalent to the
specified Federal and Connecticut tax-exempt yield for a Connecticut tax
payer in the specified income bracket.
-92-
<PAGE>
MASSACHUSETTS: 2000
Equivalent Yields: Tax-Exempt
<TABLE>
<CAPTION>
Combined Massachusetts Tax-Equivalent Yields**
$Taxable Income State Federal Effective --------------------------------------------------------------------------------
Single* Rate Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-26,250 5.85% 15.0% 19.97% 3.75% 4.37% 5.00% 5.62% 6.25% 6.87% 7.50% 8.12% 8.75% 9.37% 10.00%
26,251-63,550 5.85% 28.0% 32.21% 4.43% 5.16% 5.90% 6.64% 7.38% 8.11% 8.85% 9.59% 10.33% 11.06% 11.80%
63,551-132,600 5.85% 31.0% 35.04% 4.62% 5.39% 6.16% 6.93% 7.70% 8.47% 9.24% 10.01% 10.78% 11.55% 12.32%
132,601-288,350 5.85% 36.0% 39.74% 4.98% 5.81% 6.64% 7.47% 8.30% 9.13% 9.96% 10.79% 11.62% 12.45% 13.28%
Over 288,350 5.85% 39.6% 43.13% 5.28% 6.15% 7.03% 7.91% 8.79% 9.67% 10.55% 11.43% 12.31% 13.19% 14.07%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
$Taxable Income* Combined Massachusetts Tax-Equivalent Yields**
Married Filing State Federal Effective --------------------------------------------------------------------------------
Jointly Rate Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-43,850 5.85% 15.0% 19.97% 3.75% 4.37% 5.00% 5.62% 6.25% 6.87% 7.50% 8.12% 8.75% 9.37% 10.00%
43,851-105,950 5.85% 28.0% 32.21% 4.43% 5.16% 5.90% 6.64% 7.38% 8.11% 8.85% 9.59% 10.33% 11.06% 11.80%
105,951-161,450 5.85% 31.0% 35.04% 4.62% 5.39% 6.16% 6.93% 7.70% 8.47% 9.24% 10.01% 10.78% 11.55% 12.32%
161,451-288,350 5.85% 36.0% 39.74% 4.98% 5.81% 6.64% 7.47% 8.30% 9.13% 9.96% 10.79% 11.62% 12.45% 13.28%
Over 288,350 5.85% 39.6% 43.13% 5.28% 6.15% 7.03% 7.91% 8.79% 9.67% 10.55% 11.43% 12.31% 13.19% 14.07%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code. It is assumed that taxable income for Massachusetts tax purposes is
the same as defined in the Internal Revenue Code. In fact, however,
Massachusetts taxable income may differ due to differences in exemptions,
itemized deductions or other items.
** Each entry represents the taxable yield that is the equivalent to the
specified Federal and Massachusetts tax-exempt yield for a Massachusetts tax
payer in the specified income bracket.
-93-
<PAGE>
FLORIDA: 2000
Equivalent yields: Tax-Exempt
<TABLE>
<CAPTION>
Federal Florida Tax-Equivalent Yields**
$Taxable Income* Federal Effective --------------------------------------------------------------------------------
Single Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-26,250 15.0% 15.0% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
26,251-63,550 28.0% 28.0% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
63,551-132,600 31.0% 31.0% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
132,601-288,350 36.0% 36.0% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
Over 288,350 39.6% 39.6% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42% 13.25%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
$Taxable Income* Federal Florida Tax-Equivalent Yields**
Married Filing Federal Effective --------------------------------------------------------------------------------
Jointly Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0%
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-43,850 15.0% 15.0% 3.53% 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
43,851-105,950 28.0% 28.0% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42% 11.11%
105,951-161,450 31.0% 31.0% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87% 11.59%
161,451-288,350 36.0% 36.0% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72% 12.50%
Over 288,350 39.6% 39.6% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42% 13.25%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This amount represents taxable income as defined in the Internal Revenue
Code.
** Each entry represents the taxable yield that is the equivalent to the
specified Federal tax-exempt yield for a Florida taxpayer in the specified
income bracket.
-94-
<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 indices
or to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance of the Funds may be compared to data prepared by Lipper Analytical
Services, Inc., a widely recognized independent service which monitors the
performance of mutual funds. The performance of the Growth Fund II may also be
compared to data prepared by the S&P 500 Index, an unmanaged index of groups of
common stocks, the Consumer Price Index, or the Dow Jones Industrial Average, a
recognized unmanaged index of common stocks of 30 industrial companies listed on
the New York Stock Exchange.
Performance data as reported in national financial publications
including, but not limited to, DONOGHUE'S MONEY FUND REPORT-Registered
Trademark-, MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET JOURNAL and THE
NEW YORK TIMES, or publications of a local or regional nature may also be used
in comparing the performance of the Funds. The performance of the Institutional
Money Market and Institutional Treasury 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. Performance data will be calculated
separately for Trust Shares, Retail A Shares, Retail B Shares and/or BKB Shares
of the Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate Municipal
Bond Fund, Massachusetts Intermediate Municipal Bond Fund and Growth Fund II and
for Shares of the Institutional Money Market Fund, Institutional Treasury Money
Market Fund and Florida Municipal Bond Fund.
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.
-95-
<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.
As of May 22, 2000, the name, address and percentage ownership of the
entities or persons that held of record or beneficially more than 5% of the
outstanding shares of each class of shares of Galaxy's investment portfolios
were as follows:
-96-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
MONEY MARKET FUND
TRUST
Fleet New York 99.53%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
RETAIL B
Wylle O'Brian 5.11%
69 Edgewood Ave.
Haverhill, MA 01832-2909
TAX-EXEMPT MONEY MARKET
TRUST
Fleet New York 96.34%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
RETAIL A
Brenda May Earl 12.41%
279 Central Park West
PH-19A
New York, NY 10024-3080
Joseph Dimenna 11.54%
1049 Fifth Ave. Apt. P3
New York, NY 10028-0115
GOVERNMENT MONEY MARKET
TRUST
Fleet New York 98.09%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
U.S. TREASURY MONEY MARKET
TRUST
Fleet New York 94.58%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
RETAIL A
US Clearing A Division of 9.33%
Fleet Securities Inc.
26 Broadway
New York, NY 10004-1703
Taqua Systems Inc. 5.15%
75 Attucks Lane
Hyannis, MA 02601-1867
INSTITUTIONAL TREASURY MONEY MARKET
TRUST
Fleet New York 89.73%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
-97-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Luitpold Pharmaceuticals Inc. 6.33%
Kirk Sobecki, CFO
Attn: Harold Noviello
One Luitpold Dr.
Shirley, NY 11967
MASSACHUSETTS MUNICIPAL MONEY MARKET
RETAIL A
Fleet New York 55.55%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
CONNECTICUT MUNICIPAL MONEY MARKET
RETAIL A
Fleet New York 45.07%
Fleet Investment Services
159 East Main St.
NY/RO/T03C
Rochester, NY 14638-0001
EQUITY VALUE
TRUST
Gales & Co. 76.08%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 14.84%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 7.24%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
EQUITY GROWTH
TRUST
Gales & Co. 68.04%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 17.32%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-98-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Gales & Co. 13.87%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of
Fleet Securities Inc. 49.88%
FBO# 104-32732-16
Hilda Brandt
Roland Park Place
830 W. 40th Street, Apt. 359
Baltimore, MD 21211-2176
US Clearing A Division of 26.03%
Fleet Securities Inc.
FBO# 114-97238-17
Sara Mallow
936 Broadway
New York, NY 10010-6013
US Clearing A Division of 8.66%
Fleet Securities Inc.
FBO# 120-97689-18
Yook Y Doo
46-34 Robinson St.
Flushing, NY 11355-3445
US Clearing A Division of 6.86%
Fleet Securities Inc.
FBO# 021-90471-15
Mabel L Bowman
35634 Meyers Ct.
Fremont, CA 94536-2540
US Clearing A Division of 5.33%
Fleet Securities Inc.
FBO# 143-27206-11
Mary V Mastroianni &
Pasqual Mastroianni JT
Ten
1811 Randolph Road
Schenectady, NY
12308-2021
PRIME B
US Clearing A Division of 19.66%
Fleet Securities Inc.
FBO# 111-98315-17
Thomas J Bernfeld
185 West End Avenue, Apt. 21D
New York, NY 10023-5548
US Clearing A Division of 12.70%
Fleet Securities Inc.
FBO# 166-31108-13
Frank Catanho, Trustee
of the Frank Catanho
1996 Trust dated
10/22/96
24297 Mission Blvd.
Hayward, CA 94544-1020
-99-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
US Clearing A Division of 12.33%
Fleet Securities Inc.
FBO# 024-90318-16
Lynn C. Sherrie
P.O. Box 316
Wilson, NY 14172-0316
US Clearing A Division of 10.64%
Fleet Securities Inc.
FBO# 221-00085-18
Walter M. Swiecicki &
Cathleen Swiecicki JT WROS
119 Old Beekman Road
Monmouth Junction, NJ
08852-3114
US Clearing A Division of 5.84%
Fleet Securities Inc.
FBO# 183-97247-11
W P Fleming
66500 E 253rd
Grove, OK 74344-6163
EQUITY INCOME
TRUST
Gales & Co. 52.31%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 33.73%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 12.33%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
INTERNATIONAL EQUITY
TRUST
Gales & Co. 41.62%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 38.06%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-100-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Gales & Co. 13.28%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A
Charles Schwab & Co. Inc. 8.15%
Special Custody Acct. for
Exclusive of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
PRIME A
US Clearing A Division of 80.62%
Fleet Securities Inc.
FBO 125-98055-11
Albert F Twanmo
6508 81st St.
Cabin John, MD 20818-1203
US Clearing A Division of 14.83%
Fleet Securities Inc.
FBO 136-99157-13
Jon-Paul Dadaian
178 Clarken Drive
West Orange, NJ 07052-3441
PRIME B
US Clearing A Division of 79.69%
Fleet Securities Inc.
FBO# 102-59241-17
Church & Friary of St.
Francis of Assisi
c/o Fr. Ronald P Stark OFM
135 West 31st St.
New York, NY 10001-3405
GROWTH & INCOME
TRUST
Gales & Co. 77.71%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 18.37%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of 35.96%
Fleet Securities Inc.
FBO# 160-27022-17
Linda Shaw, Trustee
for the Linda J Shaw
Trust
920 Meadows road
Geneva, IL 60134-3052
-101-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
US Clearing A Division of 29.10%
Fleet Securities Inc.
FBO# 113-27816-16
Pamela M Fein
68 Oak Ridge Drive
Bethany, CT 06524-3118
US Clearing A Division of 24.31%
Fleet Securities Inc.
FBO# 175-97327-10
Margaret Ann
Gillenwater
2525 E Prince Road #23
Tucson, AZ 85716-1146
US Clearing A Division of 6.32%
Fleet Securities Inc.
FBO# 103-80060-19
Saint Clare School Endowment
Fund
Attn: Fr, O'Shea/Andrew J
Houvouras &/or Bruce Blatman
821 Prosperity Farms Road
No. Palm Beach, FL 33408-4299
PRIME B
US Clearing A Division of 29.49%
Fleet Securities Inc.
FBO# 147-97497-13
Martin Allen Sante
15222 Birch Lakeshore Drive
Vandalia, MI 49095-9741
US Clearing A Division of 19.45%
Fleet Securities Inc.
FBO# 103-31744-16
Irwin Luftig & Elaine Luftig
6119 Bear Creek Ct
Lake Worth, FL 33467-6812
US Clearing A Division of 16.54%
Fleet Securities Inc.
FBO# 148-28677-18
Linda M. Berke & Michael E.
Berke JT TEN
30941 Westwood Road
Farmington Hills, MI
48331-1466
US Clearing A Division of 16.14%
Fleet Securities Inc.
FBO# 147-29019-15
Walter W Quan
2617 Skyline Drive
Lorain, OH 44053-2243
US Clearing A Division of 6.18%
Fleet Securities Inc.
FBO# 013-90166-12
Florence G. St. Onge
34 Cedar Lane
Warren, RI 02885-2236
US Clearing A Division of 5.94%
Fleet Securities Inc.
FBO# 108-00116-10
Michael Kennedy & Carleen
Kennedy JT WROS
12 Walton Avenue
Locust Valley, NY 11560-1227
-102-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
ASSET ALLOCATION
TRUST
Gales & Co. 92.66%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 6.62%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of 22.80%
Fleet Securities Inc.
FBO# 114-97238-17
Sara Mallow
936 Broadway
New York, NY 10010-6013
US Clearing A Division of 22.62%
Fleet Securities Inc.
FBO# 147-97697-11
Ray Wayne Prince
11010 Stephens Road
Berlin Heights, OH 44814-9673
US Clearing A Division of 14.56%
Fleet Securities Inc.
FBO# 175-97327-10
Margaret Ann
Gillenwater
2525 E Prince Road #23
Tucson, AZ 85716-1146
US Clearing A Division of 13.10%
Fleet Securities Inc.
FBO# 166-98586-13
Pamela Ann Radamaker
1001 Tramway Blvd NE
Albuquerque, NM 87112-6280
US Clearing A Division of 7.44%
Fleet Securities Inc.
FBO 170-29789-15
Nicholas G. Roselli &
Nicholas A. Roselli JT WROS
315 Southampton Road
Westfield, MA 01085-1360
US Clearing A Division of 5.26%
Fleet Securities Inc.
FBO 194-97099-17
James Kenneth Winter
28 South Fork Cove
Senatobia, MS 38668-6329
-103-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
PRIME B
US Clearing A Division of 10.05%
Fleet Securities Inc.
FBO# 138-97818-14
Carol Y Foster
524 Marie Avenue
Blountstown, FL 32424-1218
US Clearing A Division of 9.59%
Fleet Securities Inc.
FBO# 102-92974-11
Ann E Herzog
74 Tacoma Street
Staten Island, NY 10304-4222
US Clearing A Division of 6.39%
Fleet Securities Inc.
FBO# 166-98559-16
Ann P Sargent
422 Los Encinos Avenue
San Jose, CA 95134-1336
US Clearing A Division of 6.20%
Fleet Securities Inc.
FBO# 166-97970-19
Alicia E Schober
10139 Ridgeway Drive
Cupertino, CA 95014-2658
US Clearing A Division of 5.69%
Fleet Securities Inc.
FBO# 194-14889-16
Paul R Thornton & Karin Z
Thornton JT TEN
1207 Oak Glen Lane
Sugar Land, TX 77479-6175
US Clearing A Division of 6.05%
Fleet Securities Inc.
FBO# 147-29049-19
Randall Prince
Rt. 1, Box 865
Turtletown, TN 37391-9700
SMALL COMPANY EQUITY
TRUST
Gales & Co. 60.66%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 28.34%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
-104-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Gales & Co. 7.26%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
SMALL CAP VALUE
TRUST
Gales & Co. 46.53%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 32.48%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 18.38%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of 30.36%
Fleet Securities Inc.
FBO# 104-32732-16
Hilda Brandt
3900 North Charles Street
Baltimore, MD 21218-1724
US Clearing A Division of 19.13%
Fleet Securities Inc.
FBO# 150-98301-11
N Clifford Nelson Jr
58 Middlebury Road
Orchard Park, NY 14127-3581
US Clearing A Division of 19.00%
Fleet Securities Inc.
FBO# 102-60254-19
Frederick W Geissinger
601 NW 2nd Street
Evansville, IN 47708-1013
US Clearing A Division of 12.77%
Fleet Securities Inc.
FBO# 103-97564-14
Thomas X McKenna
170 Turtle Creek Drive
Tequesta, FL 33469-1547
US Clearing A Division of 9.35%
Fleet Securities Inc.
FBO# 103-31296-18
Edward U Roddy III
109 Angler Avenue
Palm Beach, FL 33480-3101
-105-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
PRIME B
US Clearing A Division of 14.31%
Fleet Securities Inc.
FBO# 111-98315-17
Thomas J Bernfeld
185 West End Avenue, Apt. 21D
New York, NY 10023-5548
US Clearing A Division of 9.70%
Fleet Securities Inc.
FBO# 107-30623-15
Andrejs Zvejnieks
2337 Christopher Walk
Atlanta, GA 30327-1110
US Clearing A Division of 7.55%
Fleet Securities Inc.
FBO# 108-98472-11
Rufus O. Eddins, Jr.
360 Dominion Circle
Knoxville, TN 37922-2750
US Clearing A Division of 7.25%
Fleet Securities Inc.
FBO# 221-97250-13
Micheal A Veschi
106 Exmoor Court
Leesburg, VA 20176-2049
STRATEGIC EQUITY
TRUST
Gales & Co. 97.22%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B
Violet K. Saidnehr 5.90%
260 Middle Neck Road
Great Neck, NY 11021-1175
INTERMEDIATE GOVERNMENT INCOME
TRUST
Gales & Co. 37.37%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 33.74%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-106-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Gales & Co. 25.30%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B
Adriana Vita 7.42%
345 Park Ave.
New York, NY 10154
HIGH QUALITY BOND
TRUST
Gales & Co. 57.48%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 26.57%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 13.63%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A
US Clearing A Division of 45.67%
Fleet Securities Inc.
FBO# 103-30971-12
Doris G Schack
FBO - Doris G Schack Living
Trust
9161 East Evans
Scottsdale, AZ 85260-7575
US Clearing A Division of 33.77%
Fleet Securities Inc.
FBO# 132-90090-11
Virginia Holmes
303 Bella Vista Drive
Ithaca, NY 14850-5774
US Clearing A Division of 20.23%
Fleet Securities Inc.
FBO# 013-02964-11
Jane L Grayhurst
770 Boylston St., Apt 10G
Boston, MA 02199-7709
-107-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
PRIME B
US Clearing A Division of 30.75%
Fleet Securities Inc.
FBO# 200-70099-19
Neil C Feldman
41 Windham way
Englishtown, NJ 07726-8216
US Clearing A Division of 12.41%
Fleet Securities Inc.
FBO# 119-97697-10
Ira Zornberg
4219 Nautilus Avenue
Brooklyn, NY 11224-1019
US Clearing A Division of 12.22%
Fleet Securities Inc.
FBO# 147-24459-13
Jay Robert Klein
26800 Amhearst Circle #209
Cleveland, OH 44122-7572
US Clearing A Division of 11.68%
Fleet Securities Inc.
FBO# 102-68909-11
Marjorie Dion
301 Raimond Street
Yaphank, NY 11980-9725
US Clearing A Division of 7.91%
Fleet Securities Inc.
FBO# 157-98031-13
Patricia Fusco
112 E. Chapel Avenue
Cherry Hill, NJ 08034-1204
US Clearing A Division of 5.86%
Fleet Securities Inc.
FBO# 238-97175-19
Marie Gottfried
10208 Andover Coach
Circle H-2
Lake Worth, FL 33467-8158
US Clearing A Division of 5.46%
Fleet Securities Inc.
FBO# 013-03576-19
Louise Brown &
Sandra Fontaine JT
TEN
172 High Street
Woonsocket, RI 02895-4311
SHORT-TERM BOND
TRUST
Gales & Co. 43.57%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 31.50%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-108-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Gales & Co. 21.51%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B
Chelsea Police Relief Assoc. 17.41%
John R. Phillips Treas. &
Michael McCona Clerk
180 Crescent Avenue
Chelsea, MA 02150-3017
Josue Colon Cust 9.70%
Hazel Colon UGMA CT
400 Lasalle St
New Britan, CT 06051-1316
Elizabeth Mugar 9.17%
10 Chestnut St.
Apt. 1808
Springfield, MA 01103-1709
TAX-EXEMPT BOND
TRUST
Gales & Co. 38.51%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 24.35%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 32.16%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A
Charles Dagraca & Barbara 7.83%
Dagraca JT WROS
20 William Penn Rd.
Warren, NJ 07059
RETAIL B
Sylvia Fendler 11.54%
72 Brinkerhoff Ave.
Stamford, CT 06905
-109-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Frances E. Stady 6.07%
P.O. BOX 433
3176 Main St.
Yorkshire, NY 14173-0433
US Clearing A Division of 5.14%
Fleet Securities Inc.
FBO 978-02869-11
Carol Guy & Ali E. Guy
14 Thomas St.
Scarsdale, NY 10583-1031
CONNECTICUT MUNICIPAL BOND
TRUST
Gales & Co. 68.00%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 23.64%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Bob & Co. 8.12%
c/o Bank of Boston
Attn: Mutual Fd Dept
45-02-06
PO Box 1809
Boston, MA 02105-1809
RETAIL A
Maria Luisa Carcangiu 6.39%
& Juan Rosai
JT WROS
36 Beach Ave.
Milford, CT 06460
MASSACHUSETTS MUNICIPAL BOND
TRUST
Gales & Co. 43.63%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 41.97%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 12.44%
c/o Bank of Boston
Attn: Mutual Fd Dept 45-02-06
PO Box 1809
Boston, MA 02105-1809
-110-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
CORPORATE BOND
TRUST
Gales & Co. 41.24%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 31.19%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 17.64%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RHODE ISLAND MUNICIPAL BOND
RETAIL A
Gales & Co. 35.16%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 23.94%
c/o Bank of Boston
Attn: Mutual Fd Dept.
45-02-06
PO Box 1809
Boston, MA 02105-1809
James R. McCulloch 7.65%
c/o Microfibre
PO Box 1208
Pawtucket, RI 02862-1208
NEW YORK MUNICIPAL BOND
TRUST
Gales & Co. 64.12%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 16.34%
c/o Bank of Boston
ATTN: Mutual Fund
Dept. 45-02-06
P.O. Box 1809
Boston, MA 02105-1809
Gales & Co. 12.08%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-111-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
Gales & Co. 7.25%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A
Marilyn J Brantley 12.87%
5954 Van Allen Road
Belfast, NY 14711-
8750
NEW JERSEY MUNI BOND
TRUST
Gales & Co. 51.84%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 31.91%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Bob & Co. 15.95%
c/o Bank of Boston
ATTN: Mutual Fund Dept.
45-02-06
P.O. Box 1809
Boston, MA 02105-1809
RETAIL A
John W Maki & Kimberly 73.71%
McGrath Maki JT WROS
1 Connet Lane
Mendham, NJ 07945-2938
William Minnaard 10.84%
50 Rock Road
Unit A6
Hawthorne, NJ 07506-1570
PRIME RESERVES
U.S. Clearing 100.00%
26 Broadway
New York, NY 10004-1703
GOVERNMENT RESERVES
U.S. Clearing 100.00%
26 Broadway
New York, NY 10004-1703
TAX-EXEMPT RESERVES
U.S. Clearing 100.00%
26 Broadway
New York, NY 10004-1703
-112-
<PAGE>
As of April 11, 2000, the name, address and percentage 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:
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
MONEY MARKET
Stable Asset Fund 12.28%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
GOVERNMENT MONEY
Advent Realty Limited Partnership 5.82%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
U.S. TREASURY MONEY
Loring Walcott Client Sweep Acct 24.70%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
EQUITY VALUE
Fleet Savings Plus-Equity Value 26.69%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
EQUITY GROWTH
Fleet Savings Plus-Equity Growth 23.09%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Nusco Retiree Health VEBA Trust 6.91%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INTERNATIONAL EQUITY
FFG International Equity Fund 11.17%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Fleet Savings Plus-Intl Equity 10.03%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INTERMEDIATE GOVT INC
Nusco Retiree Health VEBA Trust 6.61%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
-113-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
STRATEGIC EQUITY FUND
FFG Retirement & Pension VDG 93.57%
C/O Fleet Financial Group
159 East Main
Rochester, NY 14638
HIGH QUALITY BOND
Fleet Savings Plus Plan-HQ Bond 17.58%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SHORT TERM BOND FUND
Willcox & Gibbs Retirement Plan 5.47%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
ASSET ALLOCATION
Fleet Savings Plus-Asset Allocation 27.27%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SMALL COMPANY EQUITY
Fleet Savings Plus-Small Company 31.47%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
TAX EXEMPT BOND
Nusco Retiree Health VEBA Trust 37.33%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CONNECTICUT MUNI BOND
Winnifred M Purdy 7.64%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CORPORATE BOND
Cole Hersee Pension Plan 7.87%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
GROWTH INCOME
Fleet Savings Plus-Grth Income 44.75%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Crompton & Knowles IARP 9.82%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SMALL CAP VALUE
FFG Emp Ret Misc Assets SNC 25.60%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
-114-
<PAGE>
PERCENT
REGISTRATION NAME OWNERSHIP
-----------------------------------------------------------
CVS Inc 401K P/S Pln 3 5.68%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INSTITUTIONAL GOVT
Duncanson & Holt Inc 5.66%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
NEW JERSEY MUNI BOND
Perillo Tours 22.11%
C/O Norstar Trust Co/Gales & Co
159 East Main
Rochester, NY 14638
Royal Chambord IMA 11.05%
C/O Norstar Trust Co/Gales & Co
159 East Main
Rochester, NY 14638
McKee Wendell A. Marital Trust 10.98%
C/O Norstar Trust Co/Gales & Co
159 East Main
Rochester, NY 14638
Varco Inc IMA 5.53%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Terry, Julia Lee Inv Adv 5.20%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Tiernan Diana IA 5.02%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
-115-
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risk considerations are a standard part of Standard & Poor's
analysis for credit ratings on any issuer or issue. Currency of repayment is a
key factor in this analysis. An obligor's capacity to repay foreign obligations
may be lower than its capacity to repay obligations in its local currency due to
the sovereign government's own relatively lower capacity to repay external
versus domestic debt. These sovereign risk considerations are incorporated in
the debt ratings assigned to specific issues. Foreign currency issuer ratings
are also distinguished from local currency issuer ratings
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to identify those instances where sovereign risks make them different for the
same issuer.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be 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.
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"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"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 best 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 uncertain 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
a capacity for meeting financial commitments which is highly uncertain and
solely reliant upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
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Thomson Financial BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of 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 Financial 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 Financial 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.
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Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"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 taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
p - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing
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credit quality subsequent to completion of the project, makes no comment on the
likelihood of or the risk of default upon failure of such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
* - Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an 'r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy. Debt obligations of
issuers outside the United States and its territories are rated on the same
basis as domestic corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into account currency exchange
and related uncertainties.
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
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for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" indicates poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (...) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
"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. This is the
lowest investment grade category.
"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
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rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade category.
"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 change 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.
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"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
'NR' indicates the Fitch IBCA does not rate the issuer or issue in
question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
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"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" - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default,
with little capacity to address further adverse changes in financial
circumstances.
"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include
a plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity
to pay principal and interest. Those issues determined to possess a very strong
capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
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"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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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
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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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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
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.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, the Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
Closing out a futures contract sale prior to the settlement date may be
effected by the Fund's entering into a futures contract purchase for the same
aggregate amount of the index involved and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by a Fund's entering into
a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
EXAMPLE OF A MUNICIPAL BOND INDEX FUTURES CONTRACT
Consider a portfolio manager holding $1 million par value of each of
the following municipal bonds on February 2 in a particular year.
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
--------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
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
B-4
<PAGE>
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>
<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.
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
B-5
<PAGE>
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 futures
contract has declined in response to a decrease in the underlying instruments,
the position would be less valuable and the Fund would be required to make a
variation margin payment to the broker. At any time prior to expiration of the
futures contract, Fleet may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or gain.
IV. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks in connection with the use of futures by the
Funds as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of the futures and movements in the price of the
instruments that are the subject of the hedge. The price of the futures may move
more than or less than the price of the instruments being hedged. If the price
of the futures moves less than the price of the instruments which are the
subject of the hedge, the hedge will not be fully effective but, if the price of
the instruments being hedged has moved in an unfavorable direction, a Fund would
be in a better position than if it had not hedged at all. If the price of the
instruments being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the futures. If the price of the futures
moves more than the price of the hedged instruments, the Funds involved will
experience either a loss or gain on the futures, which will not be completely
offset by movements in the price of the instruments which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price of
instruments being hedged and movements in the price of futures contracts, a Fund
may buy or sell futures contracts in a greater dollar amount than the dollar
amount of instruments being hedged if the volatility over a particular time
period of the prices of such instruments has been greater than the volatility
over such time period of the futures, or if otherwise deemed to be appropriate
by the investment adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
instruments being hedged is less than the volatility over such time period of
the futures contract being used, or if otherwise deemed to be appropriate by
Fleet. It is also possible that, where a Fund had sold futures to hedge its
portfolio against a decline in the market, the market may advance and the value
of instruments held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value in its
portfolio securities.
B-6
<PAGE>
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest its cash at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with Galaxy's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
instruments being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions that could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the adviser may still not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity 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
pertaining to Class A and Class B shares.(4)
(4) Certificate of Classification of Shares pertaining to
Class C, Class D and Class E shares.(4)
(5) Certificate of Classification of Shares pertaining to
Class C - Special Series 1 and Class D - Special Series
1 shares.(4)
(6) Certificate of Classification of Shares 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 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 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 pertaining to
Class T - Series 1 shares and Class T - Series 2
shares.(4)
(10) Certificate of Classification of Shares pertaining to
Class U - Series 1 shares and Class U - Series 2
shares; Class V shares; Class
<PAGE>
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 D - Special Series 2 shares; Class G - Series 3
shares; Class I Series 3 shares; and Class X - Series 3
shares.(8)
(16) 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)
(17) Certificate of Classification of Shares pertaining to
Class EE - Series shares and Class EE - Series 2
shares; Class V - Special Series 1 shares; and Class W
- Special Series 1 shares.(11)
(18) Certificate of Classification of Shares pertaining to
Class A - Special Series 3 shares; Class F - Special
Series 2 shares; Class E - Special Series 2 shares;
Class L - Series 6 shares; Class D - Special Series 5
shares; Class J - Series 6 shares; Class R - Series 3
shares;
-2-
<PAGE>
Class N - Series 6 shares; Class U - Series 6 shares;
Class H - Series 6 shares; and Class G - Series 6
shares.(12)
(19) Certificate of Classification of Shares pertaining to
Class FF shares; Class GG shares; Class HH - Series 1
shares and Class HH - Series 2 shares; Class II shares;
Class JJ - Series 1 shares, Class JJ - Series 2 shares
and Class JJ Series 3 shares; Class KK - Series 1
shares, Class KK - Series 2 shares and Class KK -
Series 3 shares; Class LL - Series 1 shares, Class LL -
Series 2 shares and Class LL - Series 3 shares; and
Class MM - Series 1 shares, Class MM - Series 2 shares
and Class MM - Series 3 shares.(14)
(20) Certificate of Classification of Shares pertaining to
Class MM - Series 4 shares.(16)
(21) Certificate of Classification of Shares pertaining to
Class NN-Series 1 shares; Class NN-Series 2 shares; and
Class NN-Series 3 shares.(16)
(22) Certificate of Classification of Shares pertaining to
Class NN-Series 4 Shares and Class NN- Series 5
shares.(17)
(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-
<PAGE>
(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)
(5) Form of Addendum No. 4 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with respect
to the New York Municipal Money Market Fund.(11)
(6) Form of Addendum No. 5 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with respect
to the Institutional Money Market Fund, Institutional
Treasury Money Market Fund, Florida Municipal Bond Fund,
Intermediate Tax-Exempt Bond Fund, Connecticut
Intermediate Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund and Growth Fund II.(14)
(7) Form of Addendum No. 6 to Advisory Agreement between the
Registrant and Fleet Investment Advisors Inc. with respect
to the Pan Asia Fund.(17)
(8) 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)
(9) Form of Sub-Advisory Agreement between Fleet Investment
Advisors Inc. and UOB Global Capital LLC with respect to
the Pan Asia Fund.(17)
(e) (1) Distribution Agreement between the Registrant and
Provident Distributors, Inc. dated as of December 1, 1999.
(12)
(2) Form of Amendment No. 1 to Distribution Agreement between
the Registrant and Provident Distributors, Inc. with
respect to the New York Municipal Money Market Fund.(11)
(3) Form of Amendment No. 2 to Distribution Agreement between
the Registrant and Provident Distributors, Inc. with
respect to the Institutional Money Market Fund,
Institutional Treasury Money Market Fund, Florida
Municipal Bond Fund, Intermediate Tax-
-4-
<PAGE>
Exempt Bond Fund, Connecticut Intermediate Municipal Bond
Fund, Massachusetts Intermediate Municipal Bond Fund and
Growth Fund II.(14)
(4) Form of Amendment No. 3 to Distribution Agreement between
the Registrant and Provident Distributors, Inc. with
respect to the Pan Asia Fund.(16)
(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) Amendment dated December 2, 1998 to Global Custody
Agreement between the Registrant and The Chase Manhattan
Bank.(9)
(3) 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)
(4) 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)
(5) Form of Amendment to Global Custody Agreement between the
Registrant and The Chase Manhattan Bank with respect to
the New York Municipal Money Market Fund.(11)
(6) Form of Amendment to Global Custody Agreement between the
Registrant and The Chase Manhattan Bank with respect to
the Institutional Money Market Fund, Institutional
Treasury Money Market Fund, Florida Municipal Bond Fund,
Intermediate Tax-Exempt Bond Fund, Connecticut
Intermediate Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund and Growth Fund II.(14)
(7) Form of Amendment to Global Custody Agreement between the
Registrant and The Chase Manhattan Bank with respect to
the Pan Asia Fund.(16)
(8) Consent to Assignment of Global Custody Agreement between
the Registrant, The Chase Manhattan Bank, N.A. and 440
Financial
-5-
<PAGE>
Group of Worcester, Inc. to The Shareholder Services
Group, Inc. d/b/a 440 Financial dated March 31, 1995.(11)
(h) (1) Administration Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.) dated as of June 1, 1997.(3)
(2) Amendment No. 1 dated March 3, 1998 to Administration
Agreement between the Registrant and PFPC Inc. (formerly
known as First Data Investor Services Group, Inc.) with
respect to the New Jersey Municipal Bond Fund, MidCap
Equity Fund and Strategic Equity Fund.(5)
(3) Amendment No. 2 dated as of March 5, 1998 to
Administration Agreement between the Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.).(6)
(4) Amendment No. 3 dated as of September 18, 1998 to
Administration Agreement between the Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.) with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves Fund.(8)
(5) Amendment No. 4 dated as of September 10, 1998 to
Administration Agreement between the Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.).(9)
(6) Amendment No. 5 dated as of December 1, 1999 to
Administration Agreement between Registrant and PFPC Inc.
(formerly known as First Data Investor Services Group,
Inc.).(12)
(7) Form of Amendment No. 6 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) with respect to the
New York Municipal Money Market Fund.(11)
(8) Form of Amendment No. 7 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) with respect to the
Institutional Money Market Fund, Institutional Treasury
Money Market Fund, Florida Municipal Bond Fund,
Intermediate Tax-Exempt Bond Fund, Connecticut
Intermediate Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund and Growth Fund II.(14)
-6-
<PAGE>
(9) Form of Amendment No. 8 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.)(17)
(10) Form of Amendment No. 9 to Administration Agreement
between Registrant and PFPC Inc. (formerly known as First
Data Investor Services Group, Inc.) with respect to the
Pan Asia Fund.(17)
(11) Transfer Agency and Services Agreement between the
Registrant and PFPC Inc. (formerly known as First Data
Investor Services Group, Inc.) dated as of June 1,
1997.(3)
(12) Amendment No. 1 dated March 3, 1998 to Transfer Agency and
Services Agreement between the Registrant and PFPC Inc.
(formerly known as First Data Investor Services Group,
Inc.) with respect to the New Jersey Municipal Bond Fund,
MidCap Equity Fund and Strategic Equity Fund.(5)
(13) Amendment No. 2 dated as of March 5, 1998 to Transfer
Agency and Services Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.).(6)
(14) Amendment No. 3 dated as of September 18, 1998 to Transfer
Agency and Services Agreement between the Registrant and
PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.) with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves Fund.(8)
(15) Amendment No. 4 dated as of September 10, 1998 to Transfer
Agency and Services Agreement between Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.).(9)
(16) Amendment No. 5 dated as of September 9, 1999 to Transfer
Agency and Services Agreement between Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.).(12)
(17) Amendment No. 6 dated as of December 2, 1999 to Transfer
Agency and Services Agreement between Registrant and PFPC
Inc. (formerly known as First Data Investor Services
Group, Inc.).(12)
(18) Form of Amendment No. 7 to Transfer Agency and Services
Agreement between Registrant and PFPC Inc. (formerly known
as First Data Investor Services Group, Inc.) with respect
to the New York Municipal Money Market Fund.(11)
-7-
<PAGE>
(19) Form of Amendment No. 8 to Transfer Agency and Services
Agreement between Registrant and PFPC Inc. (formerly known
as First Data Investor Services Group, Inc). with respect
to the Institutional Money Market Fund, Institutional
Treasury Money Market Fund, Florida Municipal Bond Fund,
Intermediate Tax-Exempt Bond Fund, Connecticut
Intermediate Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund and Growth Fund II.(14)
(20) Form of Amendment No. 9 to Transfer Agency and Services
Agreement between Registrant and PFPC Inc. (formerly known
as First Data Investor Services Group, Inc.). (17)
(21) Form of Amendment No. 10 to Transfer Agency and Services
Agreement between Registrant and PFPC Inc. (formerly known
as First Data Investor Services Group, Inc.) with respect
to the Pan Asia Fund.(17)
(22) Shareholder Services Plan for Trust Shares and Retail A
Shares and Related Forms of Servicing Agreements.(14)
(23) Shareholder Services Plan for BKB Shares and Related Forms
of Servicing Agreements.(14)
(24) Credit Agreement dated as of December 29, 1999 among the
Registrant, The Galaxy VIP Fund, Galaxy Fund II, Various
Banks, Deutsche Bank Securities Inc. and Deutsche Bank AG,
New York Branch.(14)
(25) Agreement and Plan of Reorganization between The Galaxy
Fund and Boston 1784 Funds.(17)
(i) (1) Opinion and consent of counsel dated September 28,
1999.(10)
(2) Opinion and consent of counsel dated December 3, 1999.(11)
(3) Opinion and consent of counsel dated February 28,
2000.(15)
(4) Opinion and consent of counsel dated May 30, 2000.(17)
(5) Opinion and consent of counsel dated May 31, 2000.(18)
(j) (1) Consent of Drinker Biddle & Reath LLP.(18)
(2) Consent of Day, Berry & Howard.(18)
-8-
<PAGE>
(3) Consent of Ropes & Gray.(18)
(4) Consent of McGuire Woods Battle & Boothe LLP.(18)
(5) Consent of Pricewaterhouse Coopers LLP.(18)
(k) None.
(l) (1) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. dated July 24, 1986.(4)
(2) Purchase Agreement between the Registrant and Shearson
Lehman Brothers Inc. dated October 11, 1990 with respect
to the Treasury, Equity Growth, Equity Income,
International Equity and High Quality Bond Funds.(4)
(3) Purchase Agreement between the Registrant and SMA
Equities, Inc. dated December 30, 1991 with respect to the
Small Company Equity Fund, Short-Term Bond Fund,
Tax-Exempt Bond Fund, Asset Allocation Fund, and New York
Municipal Bond Fund.(4)
(4) Purchase Agreement between the Registrant and Allmerica
Investments, Inc. dated February 22, 1993 with respect to
the Connecticut Municipal Bond, Massachusetts Municipal
Bond, Rhode Island Municipal Bond and Institutional
Government Money Market (formerly Institutional Treasury
Money Market) Funds.(4)
(5) Purchase Agreement between the Registrant and 440
Financial Distributors, Inc. dated May 19, 1994 with
respect to the Corporate Bond Fund.(4)
(6) Purchase Agreement between the Registrant and First Data
Distributors, 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-
<PAGE>
(9) Purchase Agreement between the Registrant and First Data
Distributors, Inc. with respect to the Strategic Equity
Fund.(5)
(10) Purchase Agreement between the Registrant and First Data
Distributors, Inc. dated September 18, 1998 with respect
to the Prime Reserves, Government Reserves and Tax-Exempt
Reserves.(9)
(11) Form of Purchase Agreement between the Registrant and
Provident Distributors, Inc. with respect to the New York
Municipal Money Market Fund.(14)
(12) Form of Purchase Agreement between the Registrant and
Provident Distributors, Inc. with respect to the
Institutional Money Market Fund, Institutional Treasury
Money Market Fund, Florida Municipal Bond Fund,
Intermediate Tax-Exempt Bond Fund, Connecticut
Intermediate Municipal Bond Fund, Massachusetts
Intermediate Municipal Bond Fund and Growth Fund II.(14)
(13) Form of Purchase Agreement between the Registrant and
Provident Distributors, Inc. with respect to the Pan Asia
Fund.(17)
(m) (1) Distribution and Services Plan for Retail B Shares and
Related Form of Servicing Agreement.(16)
(2) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to the Prime Reserves,
Government Reserves and Tax-Exempt Reserves.(5)
(3) Distribution Plan for A Prime Shares.(6)
(4) Distribution and Services Plan for B Prime Shares and
Related Form of Servicing Agreement.(6)
(5) Distribution and Services Plan and Related Form of
Servicing Agreement with respect to Prime Shares of the
New York Municipal Money Market Fund, Connecticut
Municipal Money Market Fund and Massachusetts Municipal
Money Market Fund.(11)
(6) Distribution Plan with respect to Retail A Shares of the
Pan Asia Fund.(16)
(7) Distribution Plan with respect to Prime A Shares of the
Pan Asia Fund.(17)
(8) Distribution and Services Plan and Related Form of
Servicing Agreement for Prime B Shares of the Pan Asia
Fund.(17)
-10-
<PAGE>
(n) None.
(o) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Class System.(17)
(p) (1) Code of Ethics - Registrant.(17)
(2) Code of Ethics - Fleet Investment Advisors, Inc.(16)
(3) Code of Ethics - Oechsle International Advisors, LLC(17)
(4) Code of Ethics - UOB Global Capital LLC(17)
-----------------------
(1) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 27 to the Registrant's Registration Statement
on Form N-1A (File Nos. 33-4806 and 811-4636) as filed with the Commission
on March 4, 1996.
(2) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 29 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 30, 1996.
(3) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 31 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 15, 1997.
(4) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 32 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on February 27, 1998.
(5) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 33 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on June 30, 1998.
(6) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 34 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on September 11, 1998.
(7) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 35 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on October 6, 1998.
-11-
<PAGE>
(8) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 36 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 30, 1998.
(9) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 37 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on February 26, 1999.
(10) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 38 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on September 28, 1999.
(11) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 40 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 3, 1999.
(12) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 41 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on December 29, 1999.
(13) Filed electronically as Appendix II to the Combined Prospectus/Proxy
Statement and incorporated herein by reference to the Registrant's
Registration Statement on Form N-14 as filed with the Commission on
February 7, 2000.
(14) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 43 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on February 23, 2000.
(15) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 44 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on February 28, 2000.
(16) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 46 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on April 17, 2000.
(17) Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 48 to the Registrant's Registration Statement
on Form N-1A as filed with the Commission on May 31, 2000.
(18) Filed herewith.
Item 24. Persons Controlled By or Under Common Control with
Registrant
Registrant is controlled by its Board of Trustees.
-12-
<PAGE>
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)(9). The
Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
addition, Section 9.3 of the Registrant's Declaration of Trust dated March 31,
1986, incorporated herein by reference as Exhibit (a)(1), provides as follows:
9.3 INDEMNIFICATION OF TRUSTEES, REPRESENTATIVES AND EMPLOYEES.
The Trust shall indemnify each of its Trustees against all
liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and
penalties, and as counsel fees) reasonably incurred by him
in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in
which he may be involved or with which he may be threatened,
while as a Trustee or thereafter, by reason of his being or
having been such a Trustee EXCEPT with respect to any matter
as to which he shall have been adjudicated to have acted in
bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties, PROVIDED that as to any matter
disposed of by a compromise payment by such person, pursuant
to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided
unless the Trust shall have received a written opinion from
independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance,
gross negligence or reckless disregard of duty, or the
matter of bad faith had been adjudicated, it would in the
opinion of such counsel have been adjudicated in favor of
such person. The rights accruing to any person under these
provisions shall not exclude any other right to which he may
be lawfully entitled, PROVIDED that no person may satisfy
any right of indemnity or reimbursement hereunder except out
of the property of the Trust. The Trustees may make advance
payments in connection with the indemnification under this
Section 9.3, PROVIDED that the indemnified person shall have
given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled
to such indemnification.
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
-13-
<PAGE>
indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
Item 26. (a) Business and Other Connections of Investment Adviser
Fleet Investment Advisors Inc. ("Fleet") is an investment
adviser registered under the Investment Advisers Act of 1940
(the "Advisers Act").
The list required by this Item 26 of officers and directors
of Fleet, together with information as to any business
profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past
two years, is incorporated herein by reference to Schedules
A and D of Form ADV filed by Fleet pursuant to the Advisers
Act (SEC File No. 801-20312).
(b) Business and Other Connections of Sub-Adviser
Oechsle International Advisors, LLC ("Oechsle") is an
investment adviser registered under the Investment Advisers
Act of 1940 (the "Advisers Act").
The list required by this Item 26 of the officers of
Oechsle, together with information as to any business
profession, vocation or employment of a substantial nature
engaged in by such officers during the past two years, is
incorporated herein by reference to Schedules A and D of
Form ADV filed by Oechsle pursuant to the Advisers Act (SEC
File No. 801-28111).
(c) Business and Other Connections of Sub-Adviser
UOB Global Capital LLC ("UOB") is an investment adviser
registered under the Advisers Act.
The list required by this Item 26 of the officers of UOB,
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 UOB pursuant to the Advisers Act (SEC File No.
801-56090).
Item 27. Principal Underwriter
-14-
<PAGE>
(a) In addition to The Galaxy Fund, Provident Distributors, Inc.
(the "Distributor") currently acts as distributor for The
Galaxy VIP Fund, Galaxy Fund II, International Dollar
Reserve Fund I, Ltd., Provident Institutional Funds Trust,
Columbia Common Stock Fund, Inc., Columbia Growth Fund,
Inc., Columbia International Stock Fund, Inc., Columbia
Special Fund, Inc., Columbia Small Cap Fund, Inc., Columbia
Real Estate Equity Fund, Inc., Columbia Balanced Fund, Inc.,
Columbia Daily Income Company, Columbia U.S. Government
Securities Fund, Inc., Columbia Fixed Income Securities
Fund, Inc., Columbia Municipal Bond Fund, Inc., Columbia
High Yield Fund, Inc., Columbia National Municipal Bond
Fund, Inc., GAMNA Series Funds, Inc., WT Investment Trust,
Kalmar Pooled Investment Trust, The RBB Fund, Inc.,
Robertson Stephens Investment Trust, HT Insight Funds, Inc.,
Harris Insight Funds Trust, Hilliard-Lyons Government Fund,
Inc., Hilliard-Lyons Growth Fund, Inc., Hilliard-Lyons
Research Trust, Senbanc Fund, Warburg Pincus Trust, ABN AMRO
Funds, Alleghany Funds, BT Insurance Funds Trust, First
Choice Funds Trust, Forward Funds, Inc., IAA Trust Asset
Allocation Fund, Inc., IAA Trust Growth Fund, Inc., IAA
Trust Tax Exempt Bond Fund, Inc., IAA Trust Taxable Fixed
Income Series Fund, Inc., IBJ Funds Trust, Light Index
Funds, Inc., LKCM Funds, Matthews International Funds, McM
Funds, Metropolitan West Funds, New Covenant Funds, Inc.,
Panorama Trust, Smith Breeden Series Funds, Smith Breeden
Trust, Stratton Growth Fund, Inc., Stratton Monthly Dividend
REIT Shares, Inc., The Stratton Funds, Inc., The Govett
Funds, Inc., Trainer, Wortham First Mutual Funds,
Undiscovered Managers Funds, Wilshire Target Funds, Inc.,
Weiss, Peck & Greer Funds Trust, Weiss, Peck & Greer
International Fund, WPG Growth and Income Fund, WPG Growth
Fund, WPG Tudor Fund, RWB/WPG U.S. Large Stock Fund,
Tomorrow Funds Retirement Trust, The BlackRock Funds, Inc.
(distributed by BlackRock Distributors, Inc., a wholly-owned
subsidiary of the Distributor), Northern Funds Trust and
Northern Institutional Funds Trust (distributed by Northern
Funds Distributors, LLC, a wholly-owned subsidiary of the
Distributor), The Offit Investment Fund, Inc.
(distributed by Offit Funds Distributor, Inc., a
wholly-owned subsidiary of the Distributor), The Offit
Variable Insurance Fund, Inc. (distributed by Offit Funds
Distributor, Inc., a wholly-owned subsidiary of the
Distributor).
(b) The information required by this Item 27 (b) with respect to
each director, officer, or partner of the Distributor is
incorporated by reference to Schedule A of Form BD filed by
the Distributor with the Securities and Exchange Commission
pursuant to the Securities Act of 1934, as amended (File No.
8-46564).
(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 Plan for Retail A Shares, 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 Prime A Shares
and Distribution and Services Plan for Prime B Shares.
-15-
<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) UOB Global Capital LLC, 592 Fifth Avenue, Suite 602, New
York, NY 10036 and UOB Plaza 2, 80 Raffles Place, #03-00,
Singapore 048624 (records relating to its functions as
sub-investment adviser to the Pan Asia Fund).
(4) Provident Distributors Inc., 3200 Horizon Drive, King of
Prussia, Pennsylvania 19406 (records relating to its
functions as distributor).
(5) PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.), 53 State Street, Mail Stop BOS 425, Boston, MA
02109 (records relating to its functions as administrator).
(6) PFPC Inc. (formerly known as First Data Investor Services
Group, Inc.), 4400 Computer Drive, Westborough, MA
01581-5108 (records relating to its functions as transfer
agent).
(7) Drinker Biddle & Reath LLP, One Logan Square, 18th and
Cherry Streets, Philadelphia, Pennsylvania 19103
(Registrant's Declaration of Trust, Code of Regulations and
Minute Books).
(8) The Chase Manhattan Bank, 1211 Avenue of the Americas, New
York, New York 10036 (records relating to its functions as
custodian).
Item 29. Management Services
Inapplicable.
Item 30. Undertakings
None.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to its Registration Statement under Rule 485(b)
under the Securities Act of 1933, as amended, and has duly caused this
Post-Effective Amendment No. 49 to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in Warwick, Rhode
Island, on the 1st day of June, 2000.
THE GALAXY FUND
Registrant
/s/ John T. O'Neill
--------------------
John T. O'Neill
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 48 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John T. O'Neill Trustee, President June 1, 2000
----------------------------- and Treasurer
John T. O'Neill
*/s/ Dwight E. Vicks, Jr. Chairman of the Board June 1, 2000
----------------------------- of Trustees
Dwight E. Vicks, Jr.
*/s/ Donald B. Miller Trustee June 1, 2000
-----------------------------
Donald B. Miller
*/s/ Louis DeThomasis Trustee June 1, 2000
-----------------------------
Louis DeThomasis
*/s/ Bradford S. Wellman Trustee June 1, 2000
-----------------------------
Bradford S. Wellman
*/s/ James M. Seed Trustee June 1, 2000
-----------------------------
James M. Seed
*By: /s/ John T. O'Neill
------------------------
John T. O'Neill
Attorney-In-Fact
</TABLE>
-17-
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 4, 1996 /s/ Dwight E. Vicks, Jr.
--------------------------
Dwight E. Vicks, Jr.
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ Donald B. Miller
---------------------
Donald B. Miller
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ Brother Louis DeThomasis
---------------------------
Brother Louis DeThomasis
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ Bradford S. Wellman
----------------------
Bradford S. Wellman
<PAGE>
THE GALAXY FUND
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby appoints
John T. O'Neill and W. Bruce McConnel, III, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in his capacity as
trustee or officer, or both, of The Galaxy Fund (the "Trust"), to execute any
and all amendments to the Trust's Registration Statement on Form N-1A pursuant
to the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and all instruments necessary or incidental in
connection therewith pursuant to said Acts and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, and
to file the same with the Securities and Exchange Commission, and either of said
attorneys shall have full power and authority, to do and perform in the name and
on behalf of the undersigned in any and all capacities, every act whatsoever
requisite or necessary to be done, as fully and to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys, or either of them, may lawfully do or cause to be done by virtue
hereof.
Dated: December 5, 1996 /s/ James M. Seed
--------------------
James M. Seed
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(i) Opinion and Consent of counsel dated May 31, 2000.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(j)(2) Consent of Ropes & Gray.
(j)(3) Consent of Day, Berry & Howard LLP.
(j)(4) Consent of McGuire Woods Battle & Boothe LLP.
(j)(5) Consent of PricewaterhouseCoopers LLP.
