<PAGE>
THE GALAXY FUND
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
GALAXY GROWTH FUND II
BKB SHARES
SUPPLEMENT TO THE PROSPECTUS DATED JUNE 1, 2000
(AS REVISED JUNE 26, 2000)
AND REDATED SEPTEMBER 30, 2000
THIS SUPPLEMENT TO THE PROSPECTUS SUPERCEDES AND REPLACES ALL EXISTING
SUPPLEMENTS TO THE PROSPECTUS. THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL
INFORMATION BEYOND THAT CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND
READ IN CONJUNCTION WITH THE PROSPECTUS.
1. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
INTERMEDIATE TAX-EXEMPT BOND FUND CURRENTLY FOUND ON PAGE 4 OF THE PROSPECTUS
UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Intermediate Tax-Exempt
Bond Fund (including its Predecessor Fund for the period prior to June 26, 2000)
for the six months ended June 30, 2000 was 4.30%.
2. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 8 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Connecticut Intermediate
Municipal Bond Fund (including its Predecessor Fund for the period prior to
June 26, 2000) for the six months ended June 30, 2000 was 4.03%.
3. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 12 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Massachusetts Intermediate
Municipal Bond Fund (including its Predecessor Fund for the period prior to
June 26, 2000) for the six months ended June 30, 2000 was 3.95%.
<PAGE>
4. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
GROWTH FUND II CURRENTLY FOUND ON PAGE 16 OF THE PROSPECTUS UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Growth Fund II (including
its Predecessor Fund for the period prior to June 26, 2000) for the six months
ended June 30, 2000 was 0.68%.
5. THE FOLLOWING INFORMATION REPLACES THE INFORMATION CURRENTLY FOUND ON
PAGE 20 OF THE PROSPECTUS UNDER "FUND MANAGEMENT -- ADVISER":
The management fees paid to BankBoston by each Predecessor Fund during the
fiscal year ended May 31, 2000 are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE AS
FUND A % OF 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>
6. THE FOOTNOTE TO THE SALES CHARGE TABLE ON PAGE 21 OF THE PROSPECTUS UNDER
THE HEADING "HOW TO INVEST IN THE FUNDS -- HOW SALES CHARGES WORK -- RETAIL A
SHARES" IS AMENDED AND RESTATED TO READ AS FOLLOWS:
There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after buying
them, you'll pay a CDSC of 1% of the offering price or 1% of the net asset value
of your shares, whichever is less, unless the shares were sold because of the
death or disability of the shareholder. Galaxy will waive this 1% CDSC on
withdrawals of Retail A Shares made through Galaxy's Systematic Withdrawal Plan
that don't annually exceed 12% of your account's value. See "Galaxy investor
programs -- Systematic withdrawal plan" below.
7. THE FOLLOWING FINANCIAL HIGHLIGHTS REPLACE THOSE CURRENTLY FOUND ON
PAGES 31 THROUGH 34 OF THE PROSPECTUS:
FINANCIAL HIGHLIGHTS
Each Fund began operations as a separate portfolio (the Predecessor Fund) of
the Boston 1784 Funds. On June 26, 2000, each Predecessor Fund was reorganized
as a new portfolio of Galaxy. As discussed 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
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 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 Report and are
incorporated by reference into the SAI. The Annual Report and SAI are available
free of charge upon request.
2
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.44 0.45 0.48 0.50 0.51
Net realized and unrealized gain
(loss) on investments............ (0.62) (0.01) 0.44 0.19 (0.09)
-------- -------- -------- -------- --------
Total from investment operations..... (0.18) 0.44 0.92 0.69 0.42
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.44) (0.45) (0.48) (0.50) (0.51)
Dividends from net realized capital
gains............................ (0.11) (0.18) (0.10) -- (0.06)
-------- -------- -------- -------- --------
Total dividends...................... (0.55) (0.63) (0.58) (0.50) (0.57)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.............................. (0.73) (0.19) 0.34 0.19 (0.15)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 9.60 $ 10.33 $ 10.52 $ 10.18 $ 9.99
======== ======== ======== ======== ========
Total return......................... (1.70)% 4.24% 9.24% 7.74% 4.31%
Ratios/supplemental data:
Net assets, end of period
(000's).......................... $296,711 $356,995 $303,578 $250,526 $196,787
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 4.50% 4.31% 4.62% 4.92% 4.90%
Net investment income excluding
reimbursement/waiver............. 4.19% 4.00% 4.30% 4.55% 4.48%
Operating expenses including
reimbursement/waiver............. 0.80% 0.80% 0.80% 0.80% 0.79%
Operating expenses excluding
reimbursement/waiver............. 1.11% 1.11% 1.12% 1.17% 1.21%
Portfolio turnover rate.............. 48.25% 68.58% 34.06% 33.24% 37.35%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
3
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income............... 0.46 0.48 0.50 0.51 0.53
Net realized and unrealized gain
(loss) on investments............. (0.62) (0.08) 0.45 0.21 (0.10)
-------- -------- -------- -------- -------
Total from investment operations...... (0.16) 0.40 0.95 0.72 0.43
-------- -------- -------- -------- -------
Less dividends:
Dividends from net investment
income............................ (0.46) (0.48) (0.50) (0.51) (0.53)
Dividends from net realized capital
gains............................. (0.05) (0.06) (0.02) -- --
-------- -------- -------- -------- -------
Total dividends....................... (0.51) (0.54) (0.52) (0.51) (0.53)
-------- -------- -------- -------- -------
Net increase (decrease) in net asset
value............................... (0.67) (0.14) 0.43 0.21 (0.10)
-------- -------- -------- -------- -------
Net asset value, end of period........ $ 10.00 $ 10.67 $ 10.81 $ 10.38 $ 10.17
======== ======== ======== ======== =======
Total return.......................... (1.45)% 3.72% 9.29% 7.26% 4.20%
Ratios/supplemental data:
Net assets, end of period (000's)... $148,902 $187,725 $142,107 $103,104 $81,441
Ratios to average net assets:
Net investment income including
reimbursement/waiver.............. 4.52% 4.37% 4.66% 4.94% 5.02%
Net investment income excluding
reimbursement/waiver.............. 4.20% 4.05% 4.32% 4.53% 4.48%
Operating expenses including
reimbursement/waiver.............. 0.80% 0.80% 0.80% 0.76% 0.75%
Operating expenses excluding
reimbursement/waiver.............. 1.12% 1.12% 1.14% 1.17% 1.29%
Portfolio turnover rate............... 29.76% 19.10% 16.81% 4.28% 20.41%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on August 1, 1994 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
4
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.39 $ 10.42 $ 10.01 $ 9.78 $ 9.90
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.45 0.45 0.47 0.47 0.48
Net realized and unrealized gain
(loss) on investments............ (0.61) (0.03) 0.41 0.23 (0.12)
-------- -------- -------- -------- --------
Total from investment operations..... (0.16) 0.42 0.88 0.70 0.36
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.45) (0.45) (0.47) (0.47) (0.48)
Dividends from net realized capital
gains............................ -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends...................... (0.45) (0.45) (0.47) (0.47) (0.48)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.............................. (0.61) (0.03) 0.41 0.23 (0.12)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 9.78 $ 10.39 $ 10.42 $ 10.01 $ 9.78
======== ======== ======== ======== ========
Total return......................... (1.51)% 4.10% 8.91% 7.30% 3.64%
Ratios/supplemental data:
Net assets, end of period
(000's).......................... $231,140 $267,871 $206,137 $147,459 $106,619
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 4.52% 4.32% 4.54% 4.74% 4.73%
Net investment income excluding
reimbursement/waiver............. 4.20% 4.00% 4.20% 4.35% 4.25%
Operating expenses including
reimbursement/waiver............. 0.80% 0.80% 0.80% 0.79% 0.80%
Operating expenses excluding
reimbursement/waiver............. 1.12% 1.12% 1.14% 1.18% 1.28%
Portfolio turnover rate.............. 10.58% 9.32% 6.45% 9.47% 47.00%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
5
<PAGE>
GALAXY GROWTH FUND II*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MAY 31, ENDED MAY 31,
-------------------------------------------- --------------
2000 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............ (0.06) (0.08) (0.05) 0.02 0.02
Net realized and unrealized gain
(loss) on investments.......... 8.72 (0.41) 1.59 0.96 1.25
-------- -------- -------- -------- -------
Total from investment operations... 8.66 (0.49) 1.54 0.98 1.27
-------- -------- -------- -------- -------
Less dividends:
Dividends from net investment
income......................... -- -- -- (0.05) --
Dividends from net realized
capital gains.................. (8.00) (0.38) (0.81) -- --
-------- -------- -------- -------- -------
Total dividends.................... (8.00) (0.38) (0.81) (0.05) --
-------- -------- -------- -------- -------
Net increase (decrease) in net
asset value...................... 0.66 (0.87) 0.73 0.93 1.27
-------- -------- -------- -------- -------
Net asset value, end of period..... $ 12.72 $ 12.06 $ 12.93 $ 12.20 $ 11.27
======== ======== ======== ======== =======
Total return....................... 65.97% (3.54)% 12.64% 8.77% 12.70%(2)
Ratios/supplemental data:
Net assets, end of period
(000's)........................ $185,556 $185,476 $257,550 $261,487 $46,026
Ratios to average net assets:
Net investment income including
reimbursement/waiver........... (0.33)% (0.39)% (0.35)% 0.17% 1.75%(3)
Net investment income excluding
reimbursement/waiver........... (0.58)% (0.64)% (0.60)% (0.21)% 0.22%(3)
Operating expenses including
reimbursement/waiver........... 0.88% 0.93% 0.91% 0.77% 0.20%(3)
Operating expenses excluding
Reimbursement/waiver........... 1.13% 1.18% 1.16% 1.15% 1.73%(3)
Portfolio turnover rate............ 79.38% 61.02% 48.60% 57.46% 0.00%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on March 28, 1996 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
SEPTEMBER 30, 2000
PLEASE RETAIN FOR FUTURE REFERENCE
6
<PAGE>
PROBKB2
<PAGE>
THE GALAXY FUND
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
SUPPLEMENT TO THE PROSPECTUS DATED JUNE 1, 2000
(AS REVISED JUNE 26, 2000)
AND REDATED SEPTEMBER 30, 2000
THIS SUPPLEMENT TO THE PROSPECTUS SUPERCEDES AND REPLACES ALL EXISTING
SUPPLEMENTS TO THE PROSPECTUS. THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL
INFORMATION BEYOND THAT CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND
READ IN CONJUNCTION WITH THE PROSPECTUS.
1. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
INTERMEDIATE TAX-EXEMPT BOND FUND CURRENTLY FOUND ON PAGE 4 OF THE PROSPECTUS
UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Intermediate Tax-Exempt
Bond Fund (including its Predecessor Fund for the period prior to June 26, 2000)
for the six months ended June 30, 2000 was 4.30%. BKB Shares and Retail A Shares
of the Fund should have returns that are substantially the same because they
represent interests in the same portfolio of securities and differ only to the
extent that they bear different expenses.
2. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 8 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Connecticut Intermediate
Municipal Bond Fund (including its Predecessor Fund for the period prior to
June 26, 2000) for the six months ended June 30, 2000 was 4.03%. BKB Shares and
Retail A Shares of the Fund should have returns that are substantially the same
because they represent interests in the same portfolio of securities and differ
only to the extent that they bear different expenses.
<PAGE>
3. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 12 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Massachusetts Intermediate
Municipal Bond Fund (including its Predecessor Fund for the period prior to
June 26, 2000) for the six months ended June 30, 2000 was 3.95%. BKB Shares and
Retail A Shares of the Fund should have returns that are substantially the same
because they represent interests in the same portfolio of securities and differ
only to the extent that they bear different expenses.
4. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
GROWTH FUND II CURRENTLY FOUND ON PAGE 16 OF THE PROSPECTUS UNDER THE BAR CHART:
The total return for the BKB Shares of the Galaxy Growth Fund II (including
its Predecessor Fund for the period prior to June 26, 2000) for the six months
ended June 30, 2000 was 0.68%. BKB Shares and Retail A Shares of the Fund should
have returns that are substantially the same because they represent interests in
the same portfolio of securities and differ only to the extent that they bear
different expenses.
5. THE FOLLOWING INFORMATION REPLACES THE INFORMATION CURRENTLY FOUND ON
PAGE 20 OF THE PROSPECTUS UNDER "FUND MANAGEMENT -- ADVISER":
The management fees paid to BankBoston by each Predecessor Fund during the
fiscal year ended May 31, 2000 are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE AS
FUND A % OF 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>
6. THE FOOTNOTE TO THE SALES CHARGE TABLE ON PAGE 21 OF THE PROSPECTUS UNDER
THE HEADING "HOW TO INVEST IN THE FUNDS -- HOW SALES CHARGES WORK -- RETAIL A
SHARES" IS AMENDED AND RESTATED TO READ AS FOLLOWS:
There is no front-end sales charge on investments in Retail A Shares of
$500,000 or more. However, if you sell the shares within one year after buying
them, you'll pay a CDSC of 1% of the offering price or 1% of the net asset value
of your shares, whichever is less, unless the shares were sold because of the
death or disability of the shareholder. Galaxy will waive this 1% CDSC on
withdrawals of Retail A Shares made through Galaxy's Systematic Withdrawal Plan
that don't annually exceed 12% of your account's value. See "Galaxy investor
programs -- Systematic withdrawal plan" below.
2
<PAGE>
7. THE FOLLOWING FINANCIAL HIGHLIGHTS REPLACE THOSE CURRENTLY FOUND ON
PAGES 32 THROUGH 35 OF THE PROSPECTUS:
FINANCIAL HIGHLIGHTS
Each Fund began operations as a separate portfolio (the Predecessor Fund) of
the Boston 1784 Funds. On June 26, 2000, each Predecessor Fund was reorganized
as a new portfolio of Galaxy. As discussed 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
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 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 Report and are
incorporated by reference into the SAI. The Annual Report and SAI are available
free of charge upon request.
3
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.44 0.45 0.48 0.50 0.51
Net realized and unrealized gain
(loss) on investments............ (0.62) (0.01) 0.44 0.19 (0.09)
-------- -------- -------- -------- --------
Total from investment operations..... (0.18) 0.44 0.92 0.69 0.42
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.44) (0.45) (0.48) (0.50) (0.51)
Dividends from net realized capital
gains............................ (0.11) (0.18) (0.10) -- (0.06)
-------- -------- -------- -------- --------
Total dividends...................... (0.55) (0.63) (0.58) (0.50) (0.57)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.............................. (0.73) (0.19) 0.34 0.19 (0.15)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 9.60 $ 10.33 $ 10.52 $ 10.18 $ 9.99
======== ======== ======== ======== ========
Total return......................... (1.70)% 4.24% 9.24% 7.74% 4.31%
Ratios/supplemental data:
Net assets, end of period
(000's).......................... $296,711 $356,995 $303,578 $250,526 $196,787
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 4.50% 4.31% 4.62% 4.92% 4.90%
Net investment income excluding
reimbursement/waiver............. 4.19% 4.00% 4.30% 4.55% 4.48%
Operating expenses including
reimbursement/waiver............. 0.80% 0.80% 0.80% 0.80% 0.79%
Operating expenses excluding
reimbursement/waiver............. 1.11% 1.11% 1.12% 1.17% 1.21%
Portfolio turnover rate.............. 48.25% 68.58% 34.06% 33.24% 37.35%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
4
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income............... 0.46 0.48 0.50 0.51 0.53
Net realized and unrealized gain
(loss) on investments............. (0.62) (0.08) 0.45 0.21 (0.10)
-------- -------- -------- -------- -------
Total from investment operations...... (0.16) 0.40 0.95 0.72 0.43
-------- -------- -------- -------- -------
Less dividends:
Dividends from net investment
income............................ (0.46) (0.48) (0.50) (0.51) (0.53)
Dividends from net realized capital
gains............................. (0.05) (0.06) (0.02) -- --
-------- -------- -------- -------- -------
Total dividends....................... (0.51) (0.54) (0.52) (0.51) (0.53)
-------- -------- -------- -------- -------
Net increase (decrease) in net asset
value............................... (0.67) (0.14) 0.43 0.21 (0.10)
-------- -------- -------- -------- -------
Net asset value, end of period........ $ 10.00 $ 10.67 $ 10.81 $ 10.38 $ 10.17
======== ======== ======== ======== =======
Total return.......................... (1.45)% 3.72% 9.29% 7.26% 4.20%
Ratios/supplemental data:
Net assets, end of period (000's)... $148,902 $187,725 $142,107 $103,104 $81,441
Ratios to average net assets:
Net investment income including
reimbursement/waiver.............. 4.52% 4.37% 4.66% 4.94% 5.02%
Net investment income excluding
reimbursement/waiver.............. 4.20% 4.05% 4.32% 4.53% 4.48%
Operating expenses including
reimbursement/waiver.............. 0.80% 0.80% 0.80% 0.76% 0.75%
Operating expenses excluding
reimbursement/waiver.............. 1.12% 1.12% 1.14% 1.17% 1.29%
Portfolio turnover rate............... 29.76% 19.10% 16.81% 4.28% 20.41%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on August 1, 1994 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
5
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.39 $ 10.42 $ 10.01 $ 9.78 $ 9.90
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.45 0.45 0.47 0.47 0.48
Net realized and unrealized gain
(loss) on investments............ (0.61) (0.03) 0.41 0.23 (0.12)
-------- -------- -------- -------- --------
Total from investment operations..... (0.16) 0.42 0.88 0.70 0.36
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.45) (0.45) (0.47) (0.47) (0.48)
Dividends from net realized capital
gains............................ -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends...................... (0.45) (0.45) (0.47) (0.47) (0.48)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.............................. (0.61) (0.03) 0.41 0.23 (0.12)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 9.78 $ 10.39 $ 10.42 $ 10.01 $ 9.78
======== ======== ======== ======== ========
Total return......................... (1.51)% 4.10% 8.91% 7.30% 3.64%
Ratios/supplemental data:
Net assets, end of period
(000's).......................... $231,140 $267,871 $206,137 $147,459 $106,619
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 4.52% 4.32% 4.54% 4.74% 4.73%
Net investment income excluding
reimbursement/waiver............. 4.20% 4.00% 4.20% 4.35% 4.25%
Operating expenses including
reimbursement/waiver............. 0.80% 0.80% 0.80% 0.79% 0.80%
Operating expenses excluding
reimbursement/waiver............. 1.12% 1.12% 1.14% 1.18% 1.28%
Portfolio turnover rate.............. 10.58% 9.32% 6.45% 9.47% 47.00%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
6
<PAGE>
GALAXY GROWTH FUND II*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MAY 31, ENDED MAY 31,
-------------------------------------------- --------------
2000 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............ (0.06) (0.08) (0.05) 0.02 0.02
Net realized and unrealized gain
(loss) on investments.......... 8.72 (0.41) 1.59 0.96 1.25
-------- -------- -------- -------- -------
Total from investment operations... 8.66 (0.49) 1.54 0.98 1.27
-------- -------- -------- -------- -------
Less dividends:
Dividends from net investment
income......................... -- -- -- (0.05) --
Dividends from net realized
capital gains.................. (8.00) (0.38) (0.81) -- --
-------- -------- -------- -------- -------
Total dividends.................... (8.00) (0.38) (0.81) (0.05) --
-------- -------- -------- -------- -------
Net increase (decrease) in net
asset value...................... 0.66 (0.87) 0.73 0.93 1.27
-------- -------- -------- -------- -------
Net asset value, end of period..... $ 12.72 $ 12.06 $ 12.93 $ 12.20 $ 11.27
======== ======== ======== ======== =======
Total return....................... 65.97% (3.54)% 12.64% 8.77% 12.70%(2)
Ratios/supplemental data:
Net assets, end of period
(000's)........................ $185,556 $185,476 $257,550 $261,487 $46,026
Ratios to average net assets:
Net investment income including
reimbursement/waiver........... (0.33)% (0.39)% (0.35)% 0.17% 1.75%(3)
Net investment income excluding
reimbursement/waiver........... (0.58)% (0.64)% (0.60)% (0.21)% 0.22%(3)
Operating expenses including
reimbursement/waiver........... 0.88% 0.93% 0.91% 0.77% 0.20%(3)
Operating expenses excluding
reimbursement/waiver........... 1.13% 1.18% 1.16% 1.15% 1.73%(3)
Portfolio turnover rate............ 79.38% 61.02% 48.60% 57.46% 0.00%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on March 28, 1996 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
SEPTEMBER 30, 2000
PLEASE RETAIN FOR FUTURE REFERENCE
7
<PAGE>
PRORETBKB2
<PAGE>
THE GALAXY FUND
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
SUPPLEMENT TO THE PROSPECTUS DATED JUNE 1, 2000
(AS REVISED JUNE 26, 2000)
AND REDATED SEPTEMBER 30, 2000
THIS SUPPLEMENT TO THE PROSPECTUS SUPERCEDES AND REPLACES ALL EXISTING
SUPPLEMENTS TO THE PROSPECTUS. THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL
INFORMATION BEYOND THAT CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND
READ IN CONJUNCTION WITH THE PROSPECTUS.
1. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
INSTITUTIONAL MONEY MARKET FUND CURRENTLY FOUND ON PAGE 3 OF THE PROSPECTUS
UNDER THE BAR CHART:
The total return for the Galaxy Institutional Money Market Fund (including
its Predecessor Fund for the period prior to June 26, 2000) for the six months
ended June 30, 2000 was 2.92%.
2. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
INSTITUTIONAL TREASURY MONEY MARKET FUND CURRENTLY FOUND ON PAGE 6 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the Galaxy Institutional Treasury Money Market Fund
(including its Predecessor Fund for the period prior to June 26, 2000) for the
six months ended June 30, 2000 was 2.83%.
3. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
INTERMEDIATE TAX-EXEMPT BOND FUND CURRENTLY FOUND ON PAGE 10 OF THE PROSPECTUS
UNDER THE BAR CHART:
The total return for the Trust Shares of the Galaxy Intermediate Tax-Exempt
Bond Fund (including its Predecessor Fund for the period prior to June 26, 2000)
for the six months ended June 30, 2000 was 4.30%.
4. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 15 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the Trust Shares of the Galaxy Connecticut Intermediate
Municipal Bond Fund (including its Predecessor Fund for the period prior to
June 26, 2000) for the six months ended June 30, 2000 was 4.03%.
<PAGE>
5. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 20 OF THE
PROSPECTUS UNDER THE BAR CHART:
The total return for the Trust Shares of the Galaxy Massachusetts
Intermediate Municipal Bond Fund (including its Predecessor Fund for the period
prior to June 26, 2000) for the six months ended June 30, 2000 was 3.95%.
6. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
FLORIDA MUNICIPAL BOND FUND CURRENTLY FOUND ON PAGE 25 OF THE PROSPECTUS UNDER
THE BAR CHART:
The total return for the Galaxy Florida Municipal Bond Fund (including its
Predecessor Fund for the period prior to June 26, 2000) for the six months ended
June 30, 2000 was 3.52%.
7. THE FOLLOWING INFORMATION REPLACES THE INFORMATION APPLICABLE TO THE GALAXY
GROWTH FUND II CURRENTLY FOUND ON PAGE 29 OF THE PROSPECTUS UNDER THE BAR CHART:
The total return for the Trust Shares of the Galaxy Growth Fund II
(including its Predecessor Fund for the period prior to June 26, 2000) for the
six months ended June 30, 2000 was 0.68%.
8. THE FOLLOWING INFORMATION REPLACES THE INFORMATION CURRENTLY FOUND ON
PAGE 34 OF THE PROSPECTUS UNDER "FUND MANAGEMENT -- MANAGEMENT FEES":
The management fees paid to BankBoston by each Predecessor Fund during the
fiscal year ended May 31, 2000 are set forth below.
<TABLE>
<CAPTION>
MANAGEMENT FEE AS
FUND A % OF AVERAGE NET ASSETS
---- -------------------------
<S> <C>
Institutional Money Market.................................. 0.20%
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...................................... 0.64%
Growth II................................................... 0.74%
</TABLE>
9. THE FOLLOWING INFORMATION REPLACES THE INFORMATION CURRENTLY FOUND IN THE
THIRD PARAGRAPH ON PAGE 35 OF THE PROSPECTUS UNDER "HOW TO INVEST IN THE FUNDS":
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 institutional investors, such as corporations and financial
institutions (e.g., banks, savings and loan associations and broker-dealers),
including financial institutions affiliated with the Adviser.
10. THE FOLLOWING INFORMATION REPLACES THE INFORMATION CURRENTLY FOUND IN THE
LAST TWO PARAGRAPHS ON PAGE 35 OF THE PROSPECTUS UNDER "HOW TO INVEST IN THE
FUNDS":
If your order to buy shares of a Money Market Fund is received and accepted
by Galaxy's distributor by 2:30 p.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 2:30 p.m. that day. If your order to buy
shares of a Money Market Fund is received and accepted by Galaxy's distributor
after 2:30 p.m.
2
<PAGE>
(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 2:30 p.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.
11. THE FOLLOWING FINANCIAL HIGHLIGHTS REPLACE THOSE CURRENTLY FOUND ON
PAGES 41 THROUGH 48 OF THE PROSPECTUS:
FINANCIAL HIGHLIGHTS
Each Fund began operations as a separate portfolio (the Predecessor Fund) of
the Boston 1784 Funds. On June 26, 2000, each Predecessor Fund was reorganized
as a new portfolio of Galaxy. As discussed 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
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 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 Report and are
incorporated by reference into the SAI. The Annual Report and SAI are available
free of charge upon request.
3
<PAGE>
GALAXY INSTITUTIONAL MONEY MARKET FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
MAY 31, ENDED MAY 31,
-------------------- --------------
2000 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............................... 0.05 0.05 0.03
Net realized and unrealized gain (loss) on
investments....................................... -- -- --
-------- -------- --------
Total from investment operations...................... 0.05 0.05 0.03
-------- -------- --------
Less dividends:
Dividends from net investment income................ (0.05) (0.05) (0.03)
Dividends from net realized capital gains........... -- -- --
-------- -------- --------
Total dividends....................................... (0.05) (0.05) (0.03)
-------- -------- --------
Net increase (decrease) in net asset value............ -- -- --
-------- -------- --------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return.......................................... 5.43% 5.10% 5.55%(2)
Ratios/supplemental data:
Net assets, end of period (000's)................... $696,613 $516,901 $302,338
Ratios to average net assets:
Net investment income including
reimbursement/waiver.............................. 5.35% 4.93% 5.36%(2)
Net investment income excluding
reimbursement/waiver.............................. 5.35% 4.88% 5.21%(2)
Operating expenses including reimbursement/waiver... 0.30% 0.30% 0.27%(2)
Operating expenses excluding reimbursement/waiver... 0.30% 0.35% 0.42%(2)
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on November 5, 1997 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
4
<PAGE>
GALAXY INSTITUTIONAL TREASURY MONEY MARKET FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income........ 0.05 0.05 0.05 0.05 0.05
Net realized and unrealized
gain (loss) on
investments................ -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total from investment
operations................... 0.05 0.05 0.05 0.05 0.05
---------- ---------- ---------- ---------- --------
Less dividends:
Dividends from net investment
income..................... (0.05) (0.05) (0.05) (0.05) (0.05)
Dividends from net realized
capital gains.............. -- -- -- -- --
---------- ---------- ---------- ---------- --------
Total dividends................ (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
========== ========== ========== ========== ========
Total return................... 5.26% 4.90% 5.36% 5.16% 5.45%
Ratios/supplemental data:
Net assets, end of period
(000's).................... $5,022,306 $4,346,037 $4,285,801 $2,591,487 $644,733
Ratios to average net assets:
Net investment income
including
reimbursement/waiver....... 5.15% 4.79% 5.24% 5.05% 5.29%
Net income excluding
reimbursement/waiver....... 5.15% 4.79% 5.24% 5.04% 5.22%
Operating expenses including
reimbursement/waiver....... 0.30% 0.31% 0.33% 0.33% 0.32%
Operating expenses excluding
reimbursement/waiver....... 0.30% 0.31% 0.33% 0.34% 0.39%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund began operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
5
<PAGE>
GALAXY INTERMEDIATE TAX-EXEMPT BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.33 $ 10.52 $ 10.18 $ 9.99 $ 10.14
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.44 0.45 0.48 0.50 0.51
Net realized and unrealized gain
(loss) on investments............ (0.62) (0.01) 0.44 0.19 (0.09)
-------- -------- -------- -------- --------
Total from investment operations..... (0.18) 0.44 0.92 0.69 0.42
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.44) (0.45) (0.48) (0.50) (0.51)
Dividends from net realized capital
gains............................ (0.11) (0.18) (0.10) -- (0.06)
-------- -------- -------- -------- --------
Total dividends...................... (0.55) (0.63) (0.58) (0.50) (0.57)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.............................. (0.73) (0.19) 0.34 0.19 (0.15)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 9.60 $ 10.33 $ 10.52 $ 10.18 $ 9.99
======== ======== ======== ======== ========
Total return......................... (1.70)% 4.24% 9.24% 7.74% 4.31%
Ratios/supplemental data:
Net assets, end of period
(000's).......................... $296,711 $356,995 $303,578 $250,526 $196,787
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 4.50% 4.31% 4.62% 4.92% 4.90%
Net investment income excluding
reimbursement/waiver............. 4.19% 4.00% 4.30% 4.55% 4.48%
Operating expenses including
reimbursement/waiver............. 0.80% 0.80% 0.80% 0.80% 0.79%
Operating expenses excluding
reimbursement/waiver............. 1.11% 1.11% 1.12% 1.17% 1.21%
Portfolio turnover rate.............. 48.25% 68.58% 34.06% 33.24% 37.35%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
6
<PAGE>
GALAXY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 10.67 $ 10.81 $ 10.38 $ 10.17 $ 10.27
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income............... 0.46 0.48 0.50 0.51 0.53
Net realized and unrealized gain
(loss) on investments............. (0.62) (0.08) 0.45 0.21 (0.10)
-------- -------- -------- -------- -------
Total from investment operations...... (0.16) 0.40 0.95 0.72 0.43
-------- -------- -------- -------- -------
Less dividends:
Dividends from net investment
income............................ (0.46) (0.48) (0.50) (0.51) (0.53)
Dividends from net realized capital
gains............................. (0.05) (0.06) (0.02) -- --
-------- -------- -------- -------- -------
Total dividends....................... (0.51) (0.54) (0.52) (0.51) (0.53)
-------- -------- -------- -------- -------
Net increase (decrease) in net asset
value............................... (0.67) (0.14) 0.43 0.21 (0.10)
-------- -------- -------- -------- -------
Net asset value, end of period........ $ 10.00 $ 10.67 $ 10.81 $ 10.38 $ 10.17
======== ======== ======== ======== =======
Total return.......................... (1.45)% 3.72% 9.29% 7.26% 4.20%
Ratios/supplemental data:
Net assets, end of period (000's)... $148,902 $187,725 $142,107 $103,104 $81,441
Ratios to average net assets:
Net investment income including
reimbursement/waiver.............. 4.52% 4.37% 4.66% 4.94% 5.02%
Net investment income excluding
reimbursement/waiver.............. 4.20% 4.05% 4.32% 4.53% 4.48%
Operating expenses including
reimbursement/waiver.............. 0.80% 0.80% 0.80% 0.76% 0.75%
Operating expenses excluding
reimbursement/waiver.............. 1.12% 1.12% 1.14% 1.17% 1.29%
Portfolio turnover rate............... 29.76% 19.10% 16.81% 4.28% 20.41%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on August 1, 1994 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
7
<PAGE>
GALAXY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 10.39 $ 10.42 $ 10.01 $ 9.78 $ 9.90
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.45 0.45 0.47 0.47 0.48
Net realized and unrealized gain
(loss) on investments............ (0.61) (0.03) 0.41 0.23 (0.12)
-------- -------- -------- -------- --------
Total from investment operations..... (0.16) 0.42 0.88 0.70 0.36
-------- -------- -------- -------- --------
Less dividends:
Dividends from net investment
income........................... (0.45) (0.45) (0.47) (0.47) (0.48)
Dividends from net realized capital
gains............................ -- -- -- -- --
-------- -------- -------- -------- --------
Total dividends...................... (0.45) (0.45) (0.47) (0.47) (0.48)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value.............................. (0.61) (0.03) 0.41 0.23 (0.12)
-------- -------- -------- -------- --------
Net asset value, end of period....... $ 9.78 $ 10.39 $ 10.42 $ 10.01 $ 9.78
======== ======== ======== ======== ========
Total return......................... (1.51)% 4.10% 8.91% 7.30% 3.64%
Ratios/supplemental data:
Net assets, end of period
(000's).......................... $231,140 $267,871 $206,137 $147,459 $106,619
Ratios to average net assets:
Net investment income including
reimbursement/waiver............. 4.52% 4.32% 4.54% 4.74% 4.73%
Net investment income excluding
reimbursement/waiver............. 4.20% 4.00% 4.20% 4.35% 4.25%
Operating expenses including
reimbursement/waiver............. 0.80% 0.80% 0.80% 0.79% 0.80%
Operating expenses excluding
reimbursement/waiver............. 1.12% 1.12% 1.14% 1.18% 1.28%
Portfolio turnover rate.............. 10.58% 9.32% 6.45% 9.47% 47.00%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 14, 1993 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
8
<PAGE>
GALAXY FLORIDA MUNICIPAL BOND FUND*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
MAY 31, ENDED MAY 31,
-------------------- --------------
2000 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................................. 0.43 0.44 0.43
Net realized and unrealized gain (loss) on
investments......................................... (0.61) (0.04) 0.32
------- ------- -------
Total from investment operations........................ (0.18) 0.40 0.75
------- ------- -------
Less dividends:
Dividends from net investment income.................. (0.43) (0.44) (0.43)
Dividends from net realized capital gains............. -- (0.14) (0.02)
------- ------- -------
Total dividends......................................... (0.43) (0.58) (0.45)
------- ------- -------
Net increase (decrease) in net asset value.............. (0.61) (0.18) 0.30
------- ------- -------
Net asset value, end of period.......................... $ 9.51 $ 10.12 $ 10.30
======= ======= =======
Total return............................................ (1.76)% 3.88% 7.63%(2)
Ratios/supplemental data:
Net assets, end of period (000's)..................... $61,154 $68,796 $51,793
Ratios to average net assets:
Net investment income including
reimbursement/waiver................................ 4.44% 4.25% 4.59%(3)
Net investment income excluding
reimbursement/waiver................................ 4.09% 3.91% 4.20%(3)
Operating expenses including reimbursement/waiver..... 0.80% 0.80% 0.80%(3)
Operating expenses excluding reimbursement/waiver..... 1.15% 1.14% 1.19%(3)
Portfolio turnover rate................................. 28.39% 10.88% 21.35%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on June 30, 1997 as a separate
portfolio (the "Predecessor Fund") of the Boston 1784 Funds.
On June 26, 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.
</TABLE>
9
<PAGE>
GALAXY GROWTH FUND II*
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MAY 31, ENDED MAY 31,
-------------------------------------------- --------------
2000 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............ (0.06) (0.08) (0.05) 0.02 0.02
Net realized and unrealized gain
(loss) on investments.......... 8.72 (0.41) 1.59 0.96 1.25
-------- -------- -------- -------- -------
Total from investment operations... 8.66 (0.49) 1.54 0.98 1.27
-------- -------- -------- -------- -------
Less dividends:
Dividends from net investment
income......................... -- -- -- (0.05) --
Dividends from net realized
capital gains.................. (8.00) (0.38) (0.81) -- --
-------- -------- -------- -------- -------
Total dividends.................... (8.00) (0.38) (0.81) (0.05) --
-------- -------- -------- -------- -------
Net increase (decrease) in net
asset value...................... 0.66 (0.87) 0.73 0.93 1.27
-------- -------- -------- -------- -------
Net asset value, end of period..... $ 12.72 $ 12.06 $ 12.93 $ 12.20 $ 11.27
======== ======== ======== ======== =======
Total return....................... 65.97% (3.54)% 12.64% 8.77% 12.70%(2)
Ratios/supplemental data:
Net assets, end of period
(000's)........................ $185,556 $185,476 $257,550 $261,487 $46,026
Ratios to average net assets:
Net investment income including
reimbursement/waiver........... (0.33)% (0.39)% (0.35)% 0.17% 1.75%(3)
Net investment income excluding
reimbursement/waiver........... (0.58)% (0.64)% (0.60)% (0.21)% 0.22%(3)
Operating expenses including
reimbursement/waiver........... 0.88% 0.93% 0.91% 0.77% 0.20%(3)
Operating expenses excluding
reimbursement/waiver........... 1.13% 1.18% 1.16% 1.15% 1.73%(3)
Portfolio turnover rate............ 79.38% 61.02% 48.60% 57.46% 0.00%
</TABLE>
-------------------
<TABLE>
<C> <S>
* The Fund commenced operations on March 28, 1996 as a
separate portfolio (the "Predecessor Fund") of the Boston
1784 Funds. On June 26, 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.
</TABLE>
SEPTEMBER 30, 2000
PLEASE RETAIN FOR FUTURE REFERENCE
10
<PAGE>
PROTRBKB2 46141
<PAGE>
THE GALAXY FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 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
June 26, 2000, each Predecessor Fund was reorganized as a new portfolio of
Galaxy. The Prospectuses, as well as the Predecessor Funds' Annual Report to
Shareholders dated May 31, 2000, 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 June 26, 2000) and redated on
September 30, 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 June
26, 2000) and redated on September 30, 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 June 26, 2000) and redated on
September 30, 2000.
The Predecessor Funds' audited financial statements and the report thereon
of PricewaterhouseCoopers LLP, the Predecessor Funds' independent accountants,
included in their Annual Report to Shareholders dated May 31, 2000, are
incorporated by reference into this Statement of Additional Information. No
other parts of the Predecessor Funds' Annual Report to Shareholders are
incorporated herein.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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...........................................................17
Custodial Receipts and Certificates of Participation.............................18
Repurchase and Reverse Repurchase Agreements.....................................19
Securities Lending...............................................................19
Investment Company Securities....................................................19
Derivative Securities............................................................20
American, European and Continental Depositary Receipts...........................26
Asset-Backed Securities..........................................................27
Mortgage-Backed Securities.......................................................28
Convertible Securities...........................................................29
When-Issued Purchases and Forward Commitment Transactions........................29
Guaranteed Investment Contracts..................................................30
Common and Preferred Stock.......................................................31
Loan Participations..............................................................31
STRIPS...........................................................................31
Warrants.........................................................................31
Zero Coupon Securities...........................................................32
Portfolio Securities Generally...................................................32
Special Considerations Relating to Connecticut Municipal Securities..............32
Special Considerations Relating to Florida Municipal Securities..................35
Portfolio Turnover...............................................................40
-i-
<PAGE>
<CAPTION>
Page
----
INVESTMENT LIMITATIONS................................................................40
Non-Fundamental Policies.........................................................43
VALUATION OF PORTFOLIO SECURITIES.....................................................45
Valuation of the Institutional Money Market and
Institutional Treasury Money Market Funds...................................45
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...............................................................50
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..........56
Other Purchase Information.......................................................56
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.............................59
Payroll Deduction Program - Retail A Shares, Retail B Shares and BKB Shares......60
College Investment Program - Retail A Shares, Retail B Shares and BKB Shares.....60
Direct Deposit Program - Retail A Shares, Retail B Shares and BKB Shares.........61
TAXES.................................................................................61
In General.......................................................................61
State and Local..................................................................62
Taxation of Certain Financial Instruments........................................65
Miscellaneous....................................................................65
TRUSTEES AND OFFICERS.................................................................66
Shareholder and Trustee Liability................................................69
INVESTMENT ADVISER....................................................................70
Administrator....................................................................72
CUSTODIAN AND TRANSFER AGENT..........................................................73
EXPENSES..............................................................................74
PORTFOLIO TRANSACTIONS................................................................74
-ii-
<PAGE>
<CAPTION>
Page
----
SHAREHOLDER SERVICES PLANS............................................................76
DISTRIBUTION AND SERVICES PLAN........................................................79
DISTRIBUTOR...........................................................................81
AUDITORS..............................................................................81
COUNSEL...............................................................................81
CODES OF ETHICS.......................................................................82
PERFORMANCE AND YIELD INFORMATION.....................................................82
Institutional Money Market and Institutional Treasury Money Market Funds.........82
Intermediate Tax-Exempt Bond Fund, Connecticut Intermediate
Municipal Bond Fund, Massachusetts Intermediate Municipal
Bond Fund, Florida Municipal Bond Fund and Growth Fund II...................83
Tax-Equivalency Tables - Connecticut Intermediate Municipal Bond,
Massachusetts Intermediate Municipal Bond and Florida
Municipal Bond Funds........................................................86
Performance Reporting............................................................91
MISCELLANEOUS.........................................................................92
FINANCIAL STATEMENTS.................................................................114
APPENDIX A...........................................................................A-1
APPENDIX B...........................................................................B-1
</TABLE>
-iii-
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction with
a current Prospectus. This Statement of Additional Information relates to the
Prospectuses for 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
June 26, 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/or 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. ALTHOUGH THE
INSTITUTIONAL MONEY MARKET AND INSTITUTIONAL TREASURY MONEY MARKET FUNDS
-1-
<PAGE>
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 seven 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, Pan Asia 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 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
-2-
<PAGE>
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
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
-3-
<PAGE>
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
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
-4-
<PAGE>
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 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,
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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 Municipal Securities issued by
or on behalf of 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, 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,
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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 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
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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 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
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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 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.
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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") (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.
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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 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,
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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 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
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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 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).
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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' 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
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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 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.
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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 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
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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 (the
"Code"), 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.
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
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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 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).
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REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Each Fund may purchase portfolio securities subject to the seller's
agreement to repurchase them at a mutually specified date and price ("repurchase
agreements"). Repurchase agreements will be entered into only with financial
institutions such as banks and broker/dealers which are deemed to be
creditworthy by Fleet. 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 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
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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 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
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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 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,
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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.
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.
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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 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
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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 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
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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 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
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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 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
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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."
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.
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Prepayments on asset-backed securities generally increase with falling
interest rates and decrease with rising interest rates; furthermore prepayment
rates are influenced by a variety of economic and social factors. In general,
the collateral supporting non-mortgage asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience substantial
prepayments. Like other fixed income securities, when interest rates rise, the
value of an asset-backed security generally will decline; however, when interest
rates decline, the value of an asset-backed security with prepayment features
may not increase as much as that of other fixed income securities.
Asset-backed securities are subject to greater risk of default during
periods of economic downturn. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund's experiencing difficulty in valuing or
liquidating such securities. For these reasons, under certain circumstances,
asset-backed securities may be considered illiquid securities.
MORTGAGE-BACKED SECURITIES
Each 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
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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.
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
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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 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
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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.
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
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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 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
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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 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, authorized expenditures of $10,581,600,000 for the 1999-2000 fiscal
year and $11,085,200,000 for the 2000-2001 fiscal year and projected surpluses
of $64,400,000 and $4,800,000, respectively, for those years.
As of April 30, 2000, the Comptroller estimated an operating surplus of
$402,200,000 for the 1999-2000 fiscal year. Thereafter, following a declaration
by the Governor needed to permit the appropriation of funds beyond the limits of
the State's expenditure cap, midterm budget adjustments were enacted. For the
1999-2000 fiscal year, expenditures not previously budgeted totaling
$196,400,000 were authorized and, after a required deposit into the Budget
Reserve Fund from unappropriated surplus of 5% of General Fund expenditures,
provision was made for the disposition of substantially the entire remaining
surplus, most of which would be used to avoid having to issue debt for school
construction. For the 2000-2001 fiscal year, the midterm budget adjustments
anticipate General Fund expenditures of $11,280,800,000, revenue of
$11,281,300,000, and a resulting surplus of only $500,000.
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
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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 also 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 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.
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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 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.
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.
Regional economic difficulties, reductions in revenues, and increased
expenses could lead to further fiscal problems for the State, its political
subdivisions, and its or their authorities, and agencies. Such problems 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.
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
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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 available
total $20,604.9 million, a 5.2% increase over fiscal 1999. With combined General
Revenue, Working Capital Fund and Budget Stabilization Funds at $18,870.0
million, unencumbered reserves at the end of fiscal 2000 are expected to be
$1,795.0 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
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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 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.
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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 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
August 2000 unemployment rate was 3.7%, which was unchanged over the month and
over the year. 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%, 0.4 percentage
points higher than Florida's rate. With the exception of manufacturing, all
major nonagricultural industries posted over-the-year increases in employment.
Services, Florida's largest industry, grew by 7.1 percent over the year ended
August 3, 2000 and added the highest number of new jobs (+179,700). Trade gained
the second highest number of new jobs since a year ago (+ 44,700, +2.6 percent).
Growth in construction continued to be strong at 3.7 percent, adding 13,700 jobs
over the year. Government and finance, insurance, and real estate experienced
over-the-year increases of 19,100 jobs (+2.2 percent) and 13,200 jobs (+2.9
percent), respectively. Manufacturing continued to recover gaining 3,400 jobs
over the year. Major job losses occurred in apparel and other textiles, 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
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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 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 $5.87 billion for a
total debt of $15.13 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 their
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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 will each be considered a separate industry; (ii)
financial service
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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 Fund, such a Fund may not pledge, mortgage or
hypothecate assets except to secure temporary borrowings
permitted by Investment Limitation No. 5
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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 received orders from
the SEC exempting such instruments from the definition of
investment company.
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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.
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
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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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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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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 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.
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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 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.
-47-
<PAGE>
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.
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.
-48-
<PAGE>
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
- 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.
-49-
<PAGE>
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 May 31, 2000 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........................................... $296,710,555 $148,901,936
Outstanding Shares................................... 30,922,589 14,889,621
Net Asset Value Per Share............................ $9.60 $10.00
Sales Charge (3.75% of
the offering price).................................. $0.37 $0.39
Offering Price to Public............................. $9.97 $10.39
<CAPTION>
Massachusetts
Intermediate Municipal Growth
Bond Fund Fund II
--------- -------
<S> <C> <C>
Net Assets........................................... $231,140,207 $185,326,981
Outstanding Shares................................... 23,632,520 14,567,823
Net Asset Value Per Share............................ $9.78 $12.72
Sales Charge (3.75% of
the offering price).................................. $0.38 $0.50
Offering Price to Public............................. $10.16 $13.22
</TABLE>
QUANTITY DISCOUNTS
Investors may be entitled to reduced sales charges through Rights of
Accumulation, a Letter of Intent or a combination of investments, as described
below, even if the investor does not wish to make an investment of a size that
would normally qualify for a quantity discount.
-50-
<PAGE>
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 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.
-51-
<PAGE>
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, 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
-52-
<PAGE>
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 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
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<PAGE>
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 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
-54-
<PAGE>
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 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.
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<PAGE>
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 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.
-56-
<PAGE>
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, 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
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<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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 and 100% of any such amounts that were not distributed in the prior year.
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and any capital gain net income prior to the end of
each calendar year to avoid liability for this excise tax.
The Funds will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to withholding by the Internal Revenue Service for
failure to properly include on his or her return payments of taxable interest or
dividends, or (iii) has failed to certify to the Funds that he or she is not
subject to back up withholding when required to do so or that he or she is an
"exempt recipient."
Dividends declared in October, November or December of any year which are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by 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
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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 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,
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, dividends treated as capital gain dividends for federal income tax
purposes are not subject to the tax to the extent
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<PAGE>
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 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
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 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
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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 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
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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 sixty
percent of such gain or loss will be treated as long-term capital gain or loss
without regard to the period a Fund has held the Instruments ("the 40-60 rule").
The amount of any capital gain or loss actually realized by a Fund in a
subsequent sale or other disposition of those Instruments is adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the Instruments. With respect to certain
Instruments, deductions for interest and carrying charges may not be allowed.
In accordance with Treasury regulations, certain transactions that are part
of a "Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) may be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code.
MISCELLANEOUS
Shareholders will be advised annually as to the federal income tax
consequences and, with respect to shareholders of the 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.
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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 & Printing
Vicks Lithograph & Corporation (book manufacturing and commercial printing);
Printing Corporation Director, Utica First Insurance Company; Trustee, Savings
Commercial Drive Bank of Utica; Director, Monitor Life Insurance Company;
P.O. Box 270 Director, Commercial Travelers Mutual Insurance Company;
Yorkville, NY 13495 Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
Age 66
John T. O'Neill(1) President, Treasurer & Private Investor; Executive Vice President and CFO, Hasbro,
28 Narragansett Bay Avenue Trustee Inc. (toy and game manufacturer) until December 1999;
Warwick, RI 02889 Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
Age 55
Louis DeThomasis Trustee President, Saint Mary's College of Minnesota; Director,
Saint Mary's College Bright Day Travel, Inc.; Trustee, Religious Communities
of Minnesota Trust; Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
Winona, MN 55987
Age 59
Donald B. Miller Trustee Chairman, Horizon Media, Inc. (broadcast services);
10725 Quail Covey Road Director/Trustee, Lexington Funds; Chairman, Executive
Boynton Beach, FL 33436 Committee, Compton International, Inc. (advertising agency);
Age 74 Trustee, Keuka College; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
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James M. Seed Trustee Chairman and President, The Astra Projects, Incorporated
The Astra Ventures, Inc. (land development); President, The Astra Ventures,
One Citizens Plaza Incorporated (previously, Buffinton Box Company -
Providence, RI 02903 manufacturer of cardboard boxes); Commissioner, Rhode Island
Age 59 Investment Commission; Trustee, The Galaxy VIP Fund;
Trustee, Galaxy Fund II.
Bradford S. Wellman(1) Trustee Private Investor; Vice President and Director, Acadia
2468 Ohio Street Management Company (investment services); Director, Essex
Bangor, ME 04401 County Gas Company, until January 1994; Director, Maine
Age 69 Mutual Fire Insurance Co.; Member, Maine Finance Authority;
Trustee, The Galaxy VIP Fund; Trustee, Galaxy Fund II.
W. Bruce McConnel, III Secretary Partner of the law firm Drinker Biddle & Reath LLP,
One Logan Square Philadelphia, Pennsylvania.
18th and Cherry Streets
Philadelphia, PA 19103
Age 57
William Greilich Vice President Vice President, PFPC Inc., 1991-96; Vice President and
PFPC Inc. Division Manager, PFPC Inc., 1996 to present.
4400 Computer Drive
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 September 8, 2000, each trustee receives an annual aggregate fee
of $54,000 for his services as a trustee of Galaxy, The Galaxy VIP Fund ("Galaxy
VIP") and Galaxy Fund II
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("Galaxy II") (collectively, the "Trusts"), plus an additional $4,000 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. For the period May 28, 1999 until September
7, 2000, each trustee was entitled to receive an annual aggregate fee of $45,000
for his services as a trustee of the Trusts, plus an additional $3,500 for each
in-person Galaxy Board meeting attended, with all other fees being those
currently in effect. 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 those currently in effect.
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.
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The following chart provides certain information about the fees received by
Galaxy's trustees in the most recently completed fiscal year.
<TABLE>
<CAPTION>
=========================================================================================================
Pension or
Retirement Total Compensation
Benefits Accrued from Galaxy and Fund
Aggregate Compensation as Part of Fund Complex *Paid
Name of Person/Position from Galaxy Expenses to 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:
2000 1999 1998
FUND (THOUSANDS) (THOUSANDS) (THOUSANDS)
---- ----------- ----------- -----------
<S> <C> <C> <C>
Institutional Money Market Fund $1,642 $760 $46
Institutional Treasury Money Market Fund $9,736 $8,329 $6,468
Intermediate Tax-Exempt Bond Fund $2,249 $2,241 $1,877
Connecticut Intermediate Municipal Bond Fund $1,142 $1,139 $764
Massachusetts Intermediate Municipal Bond Fund $1,692 $1,574 $1,162
Florida Municipal Bond Fund $424 $380 $267
Growth Fund II $1,827 $1,455 $2,110
</TABLE>
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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.
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.
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During the last three fiscal years, SEI received administration fees, net
of fee waivers, as set forth below:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MAY 31:
2000 1999 1998
FUND (THOUSANDS) (THOUSANDS) (THOUSANDS)
---- ----------- ----------- -----------
<S> <C> <C> <C>
Institutional Money Market Fund $538 $327 $79
Institutional Treasury Money Market Fund $3,148 $2,779 $2,303
Intermediate Tax-Exempt Bond Fund $215 $218 $200
Connecticut Intermediate Municipal Bond Fund $111 $113 $84
Massachusetts Intermediate Municipal Bond Fund $163 $156 $127
Florida Municipal Bond Fund $43 $39 $31
Growth Fund II $159 $131 $204
</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
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relating to its duties; (iv) maintain shareholder accounts; and (v) make
periodic reports to the Board of Trustees concerning Galaxy's operations.
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
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charged for effecting that transaction if Fleet determines in good faith that
such commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or Fleet'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, 2000, the Predecessor Fund of the
Growth Fund II paid soft dollar commissions in the amount of $135,167.
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 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C>
Growth Fund II $135,167 $199,396 $227,975
</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
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<PAGE>
the prices at which securities are purchased from and sold to dealers include a
dealers' mark-up or mark-down.
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 from a Fund; (iii)
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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").
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The Board of Trustees has approved Galaxy's arrangements with Service
Organizations based on information provided by Galaxy's service contractors that
there is a reasonable likelihood that the arrangements will benefit the Funds
and their shareholders by affording Galaxy greater flexibility in connection
with the efficient servicing of the accounts of the beneficial owners of Retail
A Shares of the Funds. Any material amendment to Galaxy's arrangements with
Service Organizations must be approved by a majority of Galaxy's Board of
Trustees (including a majority of the Disinterested Trustees). So long as
Galaxy's arrangements with Service Organizations are in effect, the selection
and nomination of the members of Galaxy's Board of Trustees who are not
"interested persons" (as defined in the 1940 Act) of Galaxy will be committed to
the discretion of such Disinterested Trustees.
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
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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 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.
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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 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.
-80-
<PAGE>
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.
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 Two Commerce Square,
Suite 1700, 2001 Market Street, 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,
2000 included in the Prospectuses and the financial statements contained in the
Predecessor Funds' Annual Report to Shareholders dated May 31, 2000 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 McGuireWoods LLP, Bank of America Tower, 50 North
Laura Street, Suite 3300, 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
-81-
<PAGE>
Florida Municipal Bond Fund concerning Florida taxes and the description of
special considerations relating to Florida Municipal Securities.
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.
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).
-82-
<PAGE>
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 May 31, 2000, 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 6.15% 6.34%
------------------------------------------------------------------------------------------
Institutional Treasury Money Market Fund 6.01% 6.19%
------------------------------------------------------------------------------------------
</TABLE>
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:
YIELD = 2[(a-b)/cd +1) TO THE POWER OF 6 - 1]
Where: a = dividends and interest earned by a Fund during the period;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of shares outstanding during the period
entitled to receive dividends; and
d = maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the Fund. Except as noted below, interest
earned on debt obligations held by a Fund is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest) and dividing the result
by 360 and multiplying the quotient by the market value of the obligation
-83-
<PAGE>
(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).
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.
-84-
<PAGE>
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 May 31, 2000:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
STANDARD TAX-EQUIVALENT
FUND YIELD YIELD
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate Tax-Exempt Bond Fund 4.78% 7.91%
----------------------------------------------------------------------------------------------------------------
Connecticut Intermediate Municipal Bond Fund 4.80% 8.32%
----------------------------------------------------------------------------------------------------------------
Massachusetts Intermediate Municipal Bond Fund 4.78% 8.99%
----------------------------------------------------------------------------------------------------------------
Florida Municipal Bond Fund 4.70% 7.78%
----------------------------------------------------------------------------------------------------------------
</TABLE>
Each Fund that advertises its "average annual total return" computes such
return separately for each series of shares by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment according to
the following formula:
T = [(ERV/P) - 1] TO THE POWER OF 1/n
Where: T = average annual total return;
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the l, 5 or 10 year (or other)
periods at the end of the applicable period (or a
fractional portion thereof);
P = hypothetical initial payment of $1,000; and
n = period covered by the computation, expressed in years.
Each Fund that advertises its "aggregate total return" computes such
returns separately for each series of shares by determining the aggregate
compounded rates of return during 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.
-85-
<PAGE>
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
May 31, 2000
<TABLE>
<CAPTION>
FUND
<S> <C>
Intermediate Tax-Exempt Bond Fund 40.55%(1)
Connecticut Intermediate Municipal Bond Fund 34.06%(2)
Massachusetts Intermediate Municipal Bond Fund 35.52%(1)
Florida Municipal Bond Fund 9.84%(3)
Growth Fund II 121.07%(4)
</TABLE>
--------------------
1. For the period from June 14, 1993 (initial public offering date) through
May 31, 2000.
2. For the period from August 1, 1994 (initial public offering date) through
May 31, 2000.
3. For the period from June 30, 1997 (initial public offering date) through
May 31, 2000.
4. For the period from March 28, 1996 (initial public offering date) through
May 31, 2000.
The average annual total returns for shares of the Predecessor Funds for the
one-year and five-year periods ended May 31, 2000 are as follows:
<TABLE>
<CAPTION>
ONE FIVE
FUND YEAR YEAR
---- ---- ----
<S> <C> <C>
Intermediate Tax-Exempt Bond Fund -1.70% 4.68%
Connecticut Intermediate Municipal Bond Fund -1.45% 4.52%
Massachusetts Intermediate Municipal Bond Fund -1.51% 4.41%
Florida Municipal Bond Fund -1.76% N/A
Growth Fund II 65.97% 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.
-86-
<PAGE>
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.
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.
-87-
<PAGE>
CONNECTICUT: 2000
Equivalency yields: Tax-Exempt
<TABLE>
<CAPTION>
Connecticut Tax-Equivalent Yields**
$Taxable Income* State Federal Combined ------------------------------------------------------------------
Single Rate Rate Effective Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
--------------------------------------------------------------------------------------------------------------------------------
<S> <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%
26,251-63,550 4.50% 28% 31.24% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00%
63,551-132,600 4.50% 31% 34.11% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35%
132,601-288,350 4.50% 36% 38.88% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00%
Over 288,350 4.50% 39.6% 42.32% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54%
--------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
$Taxable Income* ------------------------------------------------------
Single 6.0% 6.5% 7.0% 7.5% 8.0%
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0-26,250 7.35% 7.96% 8.58% 9.19% 9.80%
26,251-63,550 8.73% 9.45% 10.18% 10.91% 11.63%
63,551-132,600 9.11% 9.86% 10.62% 11.38% 12.14%
132,601-288,350 9.82% 10.63% 11.45% 12.27% 13.09%
Over 288,350 10.40% 11.27% 12.14% 13.00% 13.87%
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Connecticut Tax-Equivalent Yields**
$Taxable Income* State Federal Combined -----------------------------------------------------------------
Married Filing Jointly Rate Rate Effective Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
-----------------------------------------------------------------------------------------------------------------------------------
<S> <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%
43,851-105,950 4.50% 28% 31.24% 4.36% 5.09% 5.82% 6.54% 7.27% 8.00%
105,951-161,450 4.50% 31% 34.11% 4.55% 5.31% 6.07% 6.83% 7.59% 8.35%
161,451-288,350 4.50% 36% 38.88% 4.91% 5.73% 6.54% 7.36% 8.18% 9.00%
Over 288,350 4.50% 39.6% 42.32% 5.20% 6.07% 6.93% 7.80% 8.67% 9.54%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
$Taxable Income* ------------------------------------------------------
Married Filing Jointly 6.0% 6.5% 7.0% 7.5% 8.0%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0-43,850 7.34% 7.95% 8.56% 9.17% 9.79%
43,851-105,950 8.73% 9.45% 10.18% 10.91% 11.63%
105,951-161,450 9.11% 9.86% 10.62% 11.38% 12.14%
161,451-288,350 9.82% 10.63% 11.45% 12.27% 13.09%
Over 288,350 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.
-88-
<PAGE>
MASSACHUSETTS: 2000
Equivalent Yields: Tax-Exempt
<TABLE>
<CAPTION>
Massachusetts Tax-Equivalent Yields**
$Taxable Income* State Federal Combined -----------------------------------------------------------------
Single* Rate Rate Effective Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
-----------------------------------------------------------------------------------------------------------------------------------
<S> <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%
26,251-63,550 5.85% 28.0% 32.21% 4.43% 5.16% 5.90% 6.64% 7.38% 8.11%
63,551-132,600 5.85% 31.0% 35.04% 4.62% 5.39% 6.16% 6.93% 7.70% 8.47%
132,601-288,350 5.85% 36.0% 39.74% 4.98% 5.81% 6.64% 7.47% 8.30% 9.13%
Over 288,350 5.85% 39.6% 43.13% 5.28% 6.15% 7.03% 7.91% 8.79% 9.67%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
$Taxable Income* ------------------------------------------------------
Single* 6.0% 6.5% 7.0% 7.5% 8.0%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0-26,250 7.50% 8.12% 8.75% 9.37% 10.00%
26,251-63,550 8.85% 9.59% 10.33% 11.06% 11.80%
63,551-132,600 9.24% 10.01% 10.78% 11.55% 12.32%
132,601-288,350 9.96% 10.79% 11.62% 12.45% 13.28%
Over 288,350 10.55% 11.43% 12.31% 13.19% 14.07%
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Tax-Equivalent Yields**
$Taxable Income* State Federal Combined -----------------------------------------------------------------
Married Filing Jointly Rate Rate Effective Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
-----------------------------------------------------------------------------------------------------------------------------------
<S> <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%
43,851-105,950 5.85% 28.0% 32.21% 4.43% 5.16% 5.90% 6.64% 7.38% 8.11%
105,951-161,450 5.85% 31.0% 35.04% 4.62% 5.39% 6.16% 6.93% 7.70% 8.47%
161,451-288,350 5.85% 36.0% 39.74% 4.98% 5.81% 6.64% 7.47% 8.30% 9.13%
Over 288,350 5.85% 39.6% 43.13% 5.28% 6.15% 7.03% 7.91% 8.79% 9.67%
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
$Taxable Income* ------------------------------------------------------
Married Filing Jointly 6.0% 6.5% 7.0% 7.5% 8.0%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0-43,850 7.50% 8.12% 8.75% 9.37% 10.00%
43,851-105,950 8.85% 9.59% 10.33% 11.06% 11.80%
105,951-161,450 9.24% 10.01% 10.78% 11.55% 12.32%
161,451-288,350 9.96% 10.79% 11.62% 12.45% 13.28%
Over 288,350 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.
-89-
<PAGE>
FLORIDA: 2000
Equivalent yields: Tax-Exempt
<TABLE>
<CAPTION>
Florida Tax-Equivalent Yields**
$Taxable Income* Federal Federal Effective -----------------------------------------------------------------
Single Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
--------------------------------------------------------------------------------------------------------------------------
<S> <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%
26,251-63,550 28.0% 28.0% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64%
63,551-132,600 31.0% 31.0% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97%
132,601-288,350 36.0% 36.0% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59%
Over 288,350 39.6% 39.6% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11%
<CAPTION>
$Taxable Income* -----------------------------------------------------
Single 6.0% 6.5% 7.0% 7.5% 8.0%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0-26,250 7.06% 7.65% 8.24% 8.82% 9.41%
26,251-63,550 8.33% 9.03% 9.72% 10.42% 11.11%
63,551-132,600 8.70% 9.42% 10.14% 10.87% 11.59%
132,601-288,350 9.38% 10.16% 10.94% 11.72% 12.50%
Over 288,350 9.93% 10.76% 11.59% 12.42% 13.25%
</TABLE>
<TABLE>
<CAPTION>
Florida Tax-Equivalent Yields**
$Taxable Income* Federal Federal Effective -----------------------------------------------------------------
Married Filing Jointly Rate Rate 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%
--------------------------------------------------------------------------------------------------------------------------
<S> <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%
43,851-105,950 28.0% 28.0% 4.17% 4.86% 5.56% 6.25% 6.94% 7.64%
105,951-161,450 31.0% 31.0% 4.35% 5.07% 5.80% 6.52% 7.25% 7.97%
161,451-288,350 36.0% 36.0% 4.69% 5.47% 6.25% 7.03% 7.81% 8.59%
Over 288,350 39.6% 39.6% 4.97% 5.79% 6.62% 7.45% 8.28% 9.11%
$Taxable Income* -----------------------------------------------------
Married Filing Jointly 6.0% 6.5% 7.0% 7.5% 8.0%
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0-43,850 7.06% 7.65% 8.24% 8.82% 9.41%
43,851-105,950 8.33% 9.03% 9.72% 10.42% 11.11%
105,951-161,450 8.70% 9.42% 10.14% 10.87% 11.59%
161,451-288,350 9.38% 10.16% 10.94% 11.72% 12.50%
Over 288,350 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.
-90-
<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.
-91-
<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 September 20, 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 Galaxy's investment portfolios were as
follows:
-92-
<PAGE>
<TABLE>
<CAPTION>
REGISTRATION NAME PERCENT
OWNERSHIP
-------------------------------------------------------------------------
<S> <C>
MONEY MARKET FUND
TRUST SHARES
Fleet National Bank 99.64%
P.O. Box 92800
Rochester, NY 14692-8900
RETAIL B SHARES
Wylle O'Brian 5.55%
70 Jaffarian Way
Haverhill, MA 01832-2909
Ralph V. Luciano & 5.39%
Claire E. Luciano JTWROS
8651 Ethans Glen Terrace
Jacksonville, FL 32256-9072
BKB SHARES
James H. Furneaux & 5.95%
Carol S. Furneaux
JTTEN
810 Concord Road
Carlisle, MA 01741-1523
TAX-EXEMPT FUND
TRUST SHARES
Fleet National Bank 100.00%
P.O. Box 92800
Rochester, NY 14692-8900
RETAIL A SHARES
Brenda May Earl 7.15%
279 Central Park West
PH-19A
New York, NY 10024-3080
Joseph Dimenna 10.23%
1049 Fifth Ave. Apt. P3
New York, NY 10028-0115
BKB SHARES
Bob & Co. 9.96%
Treasury
Attn: A.J. Ferullo
100 Federal Street
#01-12-02
Boston, MA 02110-1802
Robert J. Grantham & 6.05%
Hannelore Grantham
JTTE
710 Mount Vernon Street
Boston, MA 02108-1330
GOVERNMENT FUND
TRUST SHARES
Fleet National Bank 98.05%
P.O. Box 92800
Rochester, NY 14692-8900
U.S. TREASURY FUND
TRUST SHARES
Fleet National Bank 94.16%
P.O. Box 92800
Rochester, NY 14692-8900
RETAIL A SHARES
US Clearing A Division of
Fleet Securities Inc. 9.78%
26 Broadway
New York, NY 10004-1703
INSTITUTIONAL TREASURY MONEY
MARKET FUND
TRUST SHARES
Fleet National Bank 16.56%
P.O. Box 92800
Rochester, NY 14692-8900
-93-
<PAGE>
Bob & Co. 9.34%
Treasury
Attn: A. J. Ferullo
100 Federal Street
#01-13-07
Boston, MA 02110-1802
Fleet Bank Omnibus 58.08%
Steven P. Suchecki
20 Church Street
Hartford, CT 06103
INSTITUTIONAL GOVERNMENT MONEY MARKET FUND
TRUST SHARES
Fleet National Bank 99.11%
P.O. Box 92800
Rochester, NY 14692-8900
INSTITUTIONAL MONEY MARKET FUND
TRUST SHARES
Fleet National Bank 28.39%
P.O. Box 92800
Rochester, NY 14692-8900
US Clearing A Division
Of Fleet Securities Inc. 6.01%
26 Broadway
New York, NY 10004-1703
Bob & Co. 18.10%
Treasury
Attn: A.J. Ferullo
100 Federal Street
#01-13-07
Boston, MA 02110-1802
Tweeter Home Entertainment 6.32%
Group Financing Company Trust
10 Pequot Way
Canton, MA 02021-2306
Century Aluminum Company 5.97%
Building A Suite 200
2511 Garden Road
Monterey, CA 93940-5330
MASSACHUSETTS MUNICIPAL MONEY MARKET FUND
RETAIL A SHARES
Fleet National Bank 38.94%
P.O. Box 92800
Rochester, NY 14692-8900
U.S. Clearing A Division of
Fleet Securities, Inc. 22.80%
26 Broadway
New York, NY 10004-1703
CONNECTICUT MUNICIPAL MONEY
MARKET FUND
RETAIL A SHARES
Fleet National Bank 45.72%
P.O. Box 92800
Rochester, NY 14692-8900
William L. Bucknall 5.06%
Norma Lee Bucknall
5 Oak Ridge Dr.
Bethany, CT 06524-3117
EQUITY VALUE FUND
TRUST SHARES
Gales & Co. 66.59%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-94-
<PAGE>
Gales & Co. 21.28%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 9.77%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
EQUITY GROWTH FUND
TRUST SHARES
Gales & Co. 67.48%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 18.11%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 14.17%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
Charles Schwab & Co. Inc. 5.33%
Special Custody Acct. for
Exclusive of Customers
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
PRIME A SHARES
US Clearing A Division of
Fleet Securities Inc. 44.83%
FBO# 104-32732-16
Hilda Brandt
Roland Park Place
830 W. 40th Street, Apt. 359
Baltimore, MD 21211-2176
US Clearing A Division of
Fleet Securities Inc. 23.40%
FBO# 114-97238-17
Sara Mallow
936 Broadway
New York, NY 10010-6013
US Clearing A Division of
Fleet Securities Inc. 7.79%
FBO# 120-97689-18
Yook Y Doo
46-34 Robinson St
Flushing, NY 11355-3445
US Clearing A Division of
Fleet Securities Inc. 6.16%
FBO# 021-90471-15
Mabel L Bowman
35634 Meyers Ct
Fremont, CA 94536-2540
</TABLE>
-95-
<PAGE>
<TABLE>
<CAPTION>
REGISTRATION NAME PERCENT
OWNERSHIP
-------------------------------------------------------------------------
<S> <C>
US Clearing A Division of
Fleet Securities Inc. 6.64%
FBO# 237-97013-17
Yale Hirshberg
48 Laurelwood Drive
Webster, MA 01570-3441
PRIME B SHARES
US Clearing A Division of
Fleet Securities Inc. 19.66%
FBO# 111-98315-17
Thomas J Bernfeld
185 West End Avenue, Apt. 21D
New York, NY 10023-5548
US Clearing A Division of
Fleet Securities Inc. 12.70%
FBO# 166-31108-13
Frank Catanho, Trustee of
the Frank Catanho
1996 Trust dated 10/22/96
24297 Mission Blvd.
Hayward, CA 94544-1020
US Clearing A Division of
Fleet Securities Inc. 12.33%
FBO# 024-90318-16
Lynn C. Sherrie
P.O. Box 316
Wilson, NY 14172-0316
US Clearing A Division of
Fleet Securities Inc. 10.64%
FBO# 221-00085-18
Walter M. Swiecicki &
Cathleen Swiecicki JTWROS
119 Old Beekman Road
Monmouth Junction, NJ
08852-3114
US Clearing A Division of
Fleet Securities Inc. 5.84%
FBO# 244-90004-19
W P Fleming
66500 E 253rd
Grove, OK 74344-6163
GROWTH FUND II
TRUST SHARES
Gales & Co. 21.19%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 7.29%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 71.19%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
Mellon Bank NA 81.90%
ACF SMM Trust 1999-J
A/C #SMME 1000002
135 Santilli Hwy.
Room 026 0320
Everett, MA 02149-1950
-96-
<PAGE>
RETAIL B SHARES
US Clearing A Division of
Fleet Securities Inc. 14.43%
FBO 979-00486-16
Joseph Papai Jr.
918 Lee Avenue
North Brunswick, NJ 08902-2351
Fleet Bank NA 10.87%
Cust of the Rollover IRA
FBO Juan Rosai
25 Crestview Dr.
North Haven, CT 06473
John S. Bunton 8.22%
780 Mountain Road
Maplewood Village
Parsonfield, ME 04047
Jay S. Koths & Gwen E.
Koths JTWROS 6.61%
409 N. Eagleville Road
Storrs, CT 06268-1810
BKB SHARES
Mellon Bank (DE) NA
TTEE 9.12%
Wilshire Large Cap Fund
Trust
U/A 3-18-98
135 Santilli Hwy
Everett, MA 02149-1950
EQUITY INCOME FUND
TRUST SHARES
Gales & Co. 52.13%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 34.91%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 12.17%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
INTERNATIONAL EQUITY FUND
TRUST SHARES
Gales & Co. 29.22%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main
Street Rochester, NY 14638-0001
Gales & Co. 27.70%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 40.29%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-97-
<PAGE>
RETAIL A SHARES
Charles Schwab & Co. Inc. 9.40%
Special Custody Acct. for
Exclusive of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104-4122
PRIME A SHARES
US Clearing A Division of
Fleet Securities Inc. 80.62%
FBO 125-98055-11
Albert F Twanmo
6508 81st St.
Cabin John, MD 20818-1203
US Clearing A Division of
Fleet Securities Inc. 14.83%
FBO 136-99157-13
Jon-Paul Dadaian
178 Clarken Drive
West Orange, NJ 07052-3441
PRIME B SHARES
US Clearing A Division of
Fleet Securities Inc. 72.56%
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
US Clearing A Division of
Fleet Securities Inc. 5.25%
FBO# 195-90025-18
Guido Guinasso
418 College Avenue
San Francisco, CA 94112-1114
BKB SHARES
Northern Trust Company 14.35%
FBO Gaustein Trust
Partnership
FFC A/C #26-0277
P.O. Box 92956
801 South Canal Street
Chicago, IL 60675-0001
GROWTH AND INCOME FUND
TRUST SHARES
Gales & Co. 56.12%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 39.00%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A SHARES
US Clearing A Division of
Fleet Securities Inc. 36.51%
FBO# 160-27022-17
Linda Shaw, Trustee for the
Linda J Shaw Trust
920 Meadows Road
Geneva, IL 60134-3052
US Clearing A Division of
Fleet Securities Inc. 29.52%
FBO# 113-27816-16
Pamela M Fein
68 Oak Ridge Drive
Bethany, CT 06524-3118
-98-
<PAGE>
US Clearing A Division of
Fleet Securities Inc. 24.69%
FBO# 175-97327-10
Margaret Ann Gillenwater
2525 E Prince Road #23
Tucson, AZ 85716-1146
US Clearing A Division of
Fleet Securities Inc. 6.42%
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 SHARES
US Clearing A Division of
Fleet Securities Inc. 29.49%
FBO# 147-97497-13
Martin Allen Sante
15222 Birch Lakeshore Drive
Vandalia, MI 49095-9741
US Clearing A Division of
Fleet Securities Inc. 19.45%
FBO# 103-31744-16
Irwin Luftig & Elaine Luftig
6119 Bear Creek Ct
Lake Worth, FL 33467-6812
US Clearing A Division of
Fleet Securities Inc. 16.54%
FBO# 148-28677-18
Linda M. Berke & Michael E. Berke JTTEN
30941 Westwood Road
Farmington Hills, MI 48331-1466
US Clearing A Division of
Fleet Securities Inc. 16.14%
FBO# 147-29019-15
Walter W Quan
2617 Skyline Drive
Lorain, OH 44053-2243
US Clearing A Division of
Fleet Securities Inc. 6.18%
FBO# 013-90166-12
Florence G. St. Onge
34 Cedar Lane
Warren, RI 02885-2236
US Clearing A Division of
Fleet Securities Inc. 5.94%
FBO# 108-00116-10
Michael Kennedy & Carleen Kennedy JTWROS
12 Walton Avenue
Locust Valley, NY 11560-1227
ASSET ALLOCATION FUND
TRUST SHARES
Gales & Co. 91.24%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-99-
<PAGE>
Gales & Co. 7.36%
Fleet Investment Services
Mutual Funds Unit - NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A SHARES
US Clearing A Division of
Fleet Securities Inc. 24.90%
FBO# 114-97238-17
Sara Mallow
936 Broadway
New York, NY 10010-6013
US Clearing A Division of
Fleet Securities Inc. 24.70%
FBO# 147-97697-11
Ray Wayne Prince
11010 Stephens Road
Berlin Heights, OH 44814-9673
US Clearing A Division of
Fleet Securities Inc. 15.91%
FBO# 175-97327-10
Margaret Ann Gillenwater
2525 E Prince Road #23
Tucson, AZ 85716-1146
US Clearing A Division of
Fleet Securities Inc. 8.12%
FBO 170-29789-15
Nicholas G. Roselli &
Nicholas A. Roselli JTWROS
315 Southampton Road
Westfield, MA 01085-1360
US Clearing A Division of
Fleet Securities Inc. 10.85%
FBO 194-97099-17
James Kenneth Winter
2523 Greenridge Dr.
Belden, MS 08826-9530
PRIME B SHARES
US Clearing A Division of
Fleet Securities Inc. 10.07%
FBO# 138-97818-14
Carol Y Foster
524 Marie Avenue
Blountstown, FL 32424-1218
US Clearing A Division of
Fleet Securities Inc. 9.61%
FBO# 102-92974-11
Ann E Herzog
74 Tacoma Street
Staten Island, NY 10304-4222
US Clearing A Division of
Fleet Securities Inc. 6.40%
FBO# 166-98559-16
Ann P Sargent
422 Los Encinos Avenue
San Jose, CA 95134-1336
US Clearing A Division of
Fleet Securities Inc. 6.22%
FBO# 166-97970-19
Alicia E Schober
10139 Ridgeway Drive
Cupertino, CA 95014-2658
US Clearing A Division of
Fleet Securities Inc. 5.71%
FBO# 19414889-16
Paul R Thornton & Karin Z
Thornton JTTEN
1207 Oak Glen Lane
Sugar Land, TX 77479-6175
-100-
<PAGE>
US Clearing A Division of
Fleet Securities Inc. 6.07%
FBO# 147-29049-19
Randall Prince
Rt. 1, Box 865
Turtletown, TN 37391-9700
SMALL COMPANY EQUITY FUND
TRUST SHARES
Gales & Co. 62.45%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 27.64%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 8.88%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
SMALL CAP VALUE FUND
TRUST SHARES
Gales & Co. 46.44%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 34.57%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 18.54%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A SHARES
US Clearing A Division of
Fleet Securities Inc. 30.37%
FBO# 104-32732-16
Hilda Brandt
Roland Park Place
830 W. 40th, Apt. 359
Baltimore, MD 21211-2176
US Clearing A Division of
Fleet Securities Inc. 19.14%
FBO# 150-98301-11
N Clifford Nelson Jr
58 Middlebury Road
Orchard Park, NY 14127-3581
US Clearing A Division of
Fleet Securities Inc. 19.00%
FBO# 102-60254-19
Frederick W Geissinger
601 NW 2nd Street
Evansville, IN 47708-1013
US Clearing A Division of
Fleet Securities Inc. 12.75%
FBO# 103-97564-14
Thomas X McKenna
170 Turtle Creek Drive
Tequesta, FL 33469-1547
-101-
<PAGE>
US Clearing A Division of
Fleet Securities Inc. 9.35%
FBO# 103-31296-18
Edward U Roddy III
109 Angler Avenue
Palm Beach, FL 33480-3101
PRIME B SHARES
US Clearing A Division of
Fleet Securities Inc. 13.49%
FBO# 111-98315-17
Thomas J Bernfeld
185 West End Avenue, Apt. 21D
New York, NY 10023-5548
US Clearing A Division of
Fleet Securities Inc. 11.83%
FBO #162-27769-10
Gilbert Shue & Eva Shue-
Trustees
Shue FamilyTrust-DTD
11/8/84
10119 Riverside Dr.
Ontario, CA 91761-7814
US Clearing A Division of
Fleet Securities Inc. 9.14%
FBO# 107-30623-15
Andrejs Zvejnieks
2337 Christopher Walk
Atlanta, GA 30327-1110
US Clearing A Division of
Fleet Securities Inc. 7.11%
FBO# 108-98472-11
Rufus O. Eddins, Jr.
360 Dominion Circle
Knoxville, TN 37922-2750
US Clearing A Division of
Fleet Securities Inc. 6.83%
FBO# 221-97250-13
Micheal A Veschi
106 Exmoor Court
Leesburg, VA 20176-2049
STRATEGIC EQUITY FUND
TRUST SHARES
Gales & Co. 94.77%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B SHARES
Violet K. Saidnehr 5.95%
260 Middle Neck Road
Great Neck, NY 11021-1175
PAN-ASIA FUND
TRUST SHARES
FIM Funding, Inc. 100.00%
Attn: Glen Martin
75 State Street
5th Floor
Mailstop: MA DE 1040G
Boston, MA 02109
RETAIL A SHARES
FIM Funding, Inc. 99.81%
Attn: Glen Martin
75 State Street
5th Floor
Mailstop: MA DE 1040G
Boston, MA 02109
-102-
<PAGE>
RETAIL B SHARES
FIM Funding, Inc. 99.40%
Attn: Glen Martin
75 State Street
5th Floor
Mailstop: MA DE 1040G
Boston, MA 02109
INTERMEDIATE GOVERNMENT
INCOME FUND
TRUST SHARES
Gales & Co. 64.05%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 21.33%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 14.35%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B SHARES
Adriana Vita 6.15%
345 Park Ave.
New York, NY 10154
BKB SHARES
Boott Mills 7.86%
c/o Richard D. Leggat
25th Floor
150 Federal Street
Boston, MA 02110-1745
Pipe Fitters Local 537 8.24%
Health & Welfare Fund
35 Travis Street #1
Allston, MA
02134-1251
HIGH QUALITY BOND FUND
TRUST SHARES
Gales & Co. 32.48%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 16.12%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 50.94%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
PRIME A SHARES
US Clearing A Division of
Fleet Securities Inc. 45.20%
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
Fleet Securities Inc. 34.06%
FBO# 132-90090-11
Virginia Holmes
303 Bella Vista Drive
Ithaca, NY 14850-5774
-103-
<PAGE>
US Clearing A Division of
Fleet Securities Inc. 20.41%
FBO# 013-02964-11
Jane L Grayhurst
770 Boylston St., Apt 10G
Boston, MA 02199-7709
PRIME B SHARES
US Clearing A Division of
Fleet Securities Inc. 30.81%
FBO# 200-70099-19
Neil C Feldman
41 Windham Way
Englishtown, NJ 07726-8216
US Clearing A Division of
Fleet Securities Inc. 12.43%
FBO# 119-97697-10
Ira Zornberg
4219 Nautilus Avenue
Brooklyn, NY 11224-1019
US Clearing A Division of
Fleet Securities Inc. 12.03%
FBO# 147-24459-13
Jay Robert Klein
26800 Amhearst Circle
#209
Cleveland, OH 44122-7572
US Clearing A Division of
Fleet Securities Inc. 11.85%
FBO# 230-02116-18
Marjorie Dion
301 Raimond Street
Yaphank, NY 11980-9725
US Clearing A Division of
Fleet Securities Inc. 7.93%
FBO# 157-98031-13
Patricia Fusco
112 E. Chapel Avenue
Cherry Hill, NJ 08034-1204
US Clearing A Division of
Fleet Securities Inc. 5.87%
FBO# 238-97175-19
Marie Gottfried
10208 Andover Coach
Circle H-2
Lake Worth, FL 33467-8158
US Clearing A Division of
Fleet Securities Inc. 5.38%
FBO# 013-03576-19
Louise Brown & Sandra Fontaine JTTEN
172 High Street
Woonsocket, RI 02895-4311
SHORT-TERM BOND FUND
TRUST SHARES
Gales & Co. 31.24%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 56.44%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-104-
<PAGE>
Gales & Co. 11.53%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL B SHARES
Chelsea Police Relief
Assoc. 17.71%
John R. Phillips Treas. &
Michael McCona Clerk
180 Crescent Avenue
Chelsea, MA 02150-3017
Josue Colon Cust 9.87%
Hazel Colon UGMACT
400 Lasalle St
New Britan, CT 06051-1316
Elizabeth Mugar 9.19%
10 Chestnut St.
Apt. 1808
Springfield, MA 01103-1709
TAX-EXEMPT BOND FUND
TRUST SHARES
Gales & Co. 38.00%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 24.11%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 37.57%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
Charles Dagraca & Barbara
Dagraca JTWROS 8
20 William Penn Rd.
Warren, NJ 07059
Estate of Charles A. Koch 6.79%
Edward J. Johnson Jr. Exec.
1 Greenbrook Rd.
Middlesex, NJ 08846
RETAIL B SHARES
Sylvia Fendler 11.56%
72 Brinkerhoff Ave.
Stamford, Ct. 06905
Frances E. Stady 6.00%
P.O. BOX 433
3176 Main St.
Yorkshire, NY 14173-0433
US Clearing A Division of
Fleet Securities Inc. 5.15%
FBO 978-02869-11
Carol Guy & Ali E. Guy
14 Thomas St.
Scarsdale, NY 10583-1031
INTERMEDIATE TAX-EXEMPT
BOND FUND
TRUST SHARES
Gales & Co. 5.68%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
-105-
<PAGE>
Gales & Co. 92.11%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
RETAIL A SHARES
PFPC Inc. 100.00%
Attn: William Greilich
4400 Computer Drive
Westboro, MA 01581
BKB SHARES
Charles Schwab & Co. 37.13%
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
CONNECTICUT MUNICIPAL BOND
FUND
TRUST SHARES
Gales & Co. 70.85%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
Gales & Co. 28.93%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
CONNECTICUT INTERMEDIATE
MUNICIPAL BOND FUND
TRUST SHARES
Gales & Co. 93.50%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
RETAIL A SHARES
Maria Guama & Nazzareno
Guama JTWROS 73.48%
147 Woodbury Ave.
Stamford, CT 06907
Catherine J. Fellows 26.50%
7 Pent Road
Bloomfield, CT 06002-1518
BKB SHARES
Charles Schwab & Co. 24.56%
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Kelly F. Shackelford 5.24%
P.O. Box 672
New Canaan, CT 06840-0672
FLORIDA MUNICIPAL BOND FUND
TRUST SHARES
Gales & Co. 92.99%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
-106-
<PAGE>
Gales & Co. 5.94%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638
MASSACHUSETTS MUNICIPAL BOND
FUND
TRUST SHARES
Gales & Co. 43.06%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 55.24%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
MASSACHUSETTS INTERMEDIATE
MUNICIPAL BOND FUND
TRUST SHARES
Gales & Co. 86.19%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 13.20%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
Edward S. Kondi & Wenja
S. Kondi JTWros 23.43%
501 Lexington St.
Unit 1
Waltham, MA 02462
William J. Tedoldi & Betsy
M. Tedoldi
JTWROS 46.73%
68 High St.
Needham, MA 02492
US Clearing A Division of
Fleet Securities Inc. 23.02%
FBO# 245-00100-00
Marc P. Hayes & Helen
Hayes JTTEN
52 Phillip Farm Rd.
Marshfield, MA 02050
CORPORATE BOND FUND
TRUST SHARES
Gales & Co. 38.78%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 35.22%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 19.75%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-107-
<PAGE>
RHODE ISLAND MUNICIPAL BOND
FUND
TRUST SHARES
Gales & Co. 91.08%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 8.56%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
Gales & Co. 34.11%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 26.20%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
James R. McCulloch 7.44%
c/o Microfibre
PO Box 1208
Pawtucket, RI 02862-1208
BKB SHARES
US Clearing A Division of
Fleet Securities Inc. 8.73%
FBO #245-26616-10
Penn & Curren Materials
75 Pennsylvania Avenue
Warwick, RI 02888-3028
Charles Schwab & Co. 10.37%
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
NEW YORK MUNICIPAL BOND
FUND
TRUST SHARES
Gales & Co. 60.91%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 33.54%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
Gales & Co. 5.49%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
Marilyn J Brantley 13.28%
5954 Van Allen Road
Belfast, NY 14711-8750
NEW JERSEY MUNICIPAL BOND
FUND
TRUST SHARES
Gales & Co. 52.14%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
-108-
<PAGE>
Gales & Co. 47.30%
Fleet Investment Services
Mutual Funds Unit -
NY/RO/TO4A
159 East Main Street
Rochester, NY 14638-0001
RETAIL A SHARES
John W Maki & Kimberly
McGrath Maki JT WROS 15.39%
1 Connet Lane
Mendham, NJ 07945-2938
US Clearing A Division of
Fleet Securities Inc. 24.86%
FBO 979-08676-19
George L. Gutierrez &
Nereida Gutierrez
8 Old Farm Road
Saddle River, NJ 07458-3106
US Clearing A Division of
Fleet Securities Inc. 54.94%
FBO 979-10688-11
John J. Delucca
314 Ardmore Road
Ho Ho Kus, NJ 07423-1110
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
</TABLE>
-109-
<PAGE>
As of September 20, 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:
<TABLE>
<CAPTION>
REGISTRATION NAME PERCENT
OWNERSHIP
-------------------------------------------------------------------------
<S> <C>
MONEY MARKET FUND
Stable Asset Fund 15.46%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
GOVERNMENT FUND
Murphy John Davis TRUA 6.71%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
U.S. TREASURY FUND
Loring Walcott Client
Sweep Acct 26.75%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
EQUITY VALUE FUND
Leviton MFG Co Ret Sav
Plan 6.15%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
EQUITY GROWTH FUND
Fleet Savings Plus-Equity
Growth 23.47%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Nusco Retiree Health
VEBA Trust 6.75%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INTERNATIONAL EQUITY FUND
Fleet Savings Plus-Intl
Equity 8.70%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
FFG International Equity
Fund 7.01%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
STRATEGIC EQUITY FUND
FFG Retirement & Pension
VDG 90.99%
C/O Fleet Financial Group
159 East Main
Rochester, NY 14638
HIGH QUALITY BOND FUND
Fleet Savings Plus Plan-HQ
Bond 12.39%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
-110-
<PAGE>
SHORT TERM BOND FUND
Brown Shoe Co. 8.59%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
ASSET ALLOCATION FUND
Fleet Savings Plus-Asset
Allocation 31.86%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SMALL COMPANY EQUITY FUND
Fleet Savings Plus-Small
Company 37.97%
C/O Norstar Trust Co
Gales & Coq
159 East Main
Rochester, NY 14638
TAX EXEMPT BOND FUND
Nusco Retiree Health
VEBA Trust 36.85%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CONNECTICUT MUNICIPAL BOND
FUND
Winnifred M Purdy 8.16%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CORPORATE BOND FUND
Cole Hersee Pension Plan 7.43%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
GROWTH AND INCOME FUND
Fleet Savings Plus-Grth
Income 38.27%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
SMALL CAP VALUE FUND
FFG Emp Ret Misc Assets
SNC 24.41%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
CVS Inc 401K P/S Pln 3 12.62%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INSTITUTIONAL GOVERNMENT
MONEY MARKET FUND
Duncanson & Holt Inc 6.76%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
INS Corp. of New York
Liab. Match Port 6.15%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
-111-
<PAGE>
Town Of York 5.24%
C/O Norstar Trust Co.
Gates & Co.
159 East Main
Rochester, NY 14638
NEW JERSEY MUNICIPAL BOND
FUND
Perillo Tours 19.86%
C/O Norstar Trust Co/Gales
& Co
159 East Main
Rochester, NY 14638
Royal Chambord IMA 9.93%
C/O Norstar Trust Co/Gales
& Co
159 East Main
Rochester, NY 14638
McKee Wendell A. Marital
Trust 9.86%
C/O Norstar Trust Co/Gales
& Co
159 East Main
Rochester, NY 14638
Dorothy L. Nelson 6.14%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
Robert Lawrence Jr. 5.12%
C/O Norstar Trust Co
Gales & Co
159 East Main
Rochester, NY 14638
RHODE ISLAND MUNICIPAL
BOND FUND
CP Pritchard TR GST Non-
Exempt 13.64%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
INSTITUTIONAL TREASURY MONEY
MARKET FUND
Transwitch Cap Focus Accr B 7.95%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
CONNECTICUT INTERMEDIATE
MUNICIPAL BOND FUND
T.P. Parkas Temp 10.46%
Gales & Co.
159 East Main
Rochester, NY 14638
M.G./Michael Sendzimir 5.32%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
FLORIDA MUNICIPAL BOND
FUND
CP Pritchard TR B SH LP
Hess 6.82%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
-112-
<PAGE>
William M. Wood Trust 6.20%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
Charles G. Bancroft TR
U/Will 5.71%
C/O Norstar Trust Co.
Gales & Co.
159 East Main
Rochester, NY 14638
</TABLE>
-113-
<PAGE>
FINANCIAL STATEMENTS
The Annual Report to Shareholders with respect to the Predecessor
Funds for the fiscal year ended May 31, 2000 has been filed with the SEC. The
financial statements contained in such Annual Report are incorporated by
reference into this Statement of Additional Information. No other parts of
the Annual Report to Shareholders are incorporated by reference herein. The
financial statements and financial highlights for the Predecessor Funds
included in such Annual Report to Shareholders have been audited by the
Predecessor Funds' independent accountants, PricewaterhouseCoopers LLP, whose
report thereon also appears in such Annual Report and is also incorporated
herein by reference. The financial statements in such Annual Report have been
incorporated herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
-114-
<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.
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:
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<PAGE>
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization structure
with moderate reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital markets is good.
Risk factors are small.
"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.
A-2
<PAGE>
"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.
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
A-3
<PAGE>
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.
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
A-4
<PAGE>
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 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.
A-5
<PAGE>
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 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.
A-6
<PAGE>
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
rated "DD" is a defaulted debt obligation, and the rating "DP" represents
preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA,"
"A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A-7
<PAGE>
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity
may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. 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.
"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.
A-8
<PAGE>
`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.
"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.
A-9
<PAGE>
"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.
"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.
A-10
<PAGE>
"MIG-4"/ "VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-11
<PAGE>
APPENDIX B
As stated above, the Funds may enter into futures transactions for
hedging purposes. The following is a description of such transactions.
I. INTEREST RATE FUTURES CONTRACTS
USE OF INTEREST RATE FUTURES CONTRACTS. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, the Funds may use interest rate
futures contracts as a defense, or hedge, against anticipated interest rate
changes and not for speculation. As described below, this would include the
use of futures contract sales to protect against expected increases in
interest rates and futures contract purchases to offset the impact of
interest rate declines.
The Funds presently could accomplish a similar result to that which they
hope to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures
market, the protection is more likely to be achieved, perhaps at a lower cost
and without changing the rate of interest being earned by the Funds, through
using futures contracts.
DESCRIPTION OF INTEREST RATE FUTURES CONTRACTS. An interest rate futures
contract sale would create an obligation by a Fund, as seller, to deliver the
specific type of financial instrument called for in the contract at a
specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of
the specific type of financial instrument and the same delivery date. If the
price of the sale exceeds the price of the offsetting purchase, the Fund
immediately is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures contract
purchase is effected by a Fund entering into a futures contract sale. If the
offsetting sale price exceeds the purchase
B-1
<PAGE>
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -- principally, the Chicago Board of Trade,
the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any interest rate futures
contracts for which there exists a public market, including, without
limitation, the foregoing instruments.
EXAMPLE OF FUTURES CONTRACT SALE. The Funds would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the
loss in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security held by
a particular Fund tends to move in concert with the futures market prices of
long-term United States Treasury bonds ("Treasury bonds"). Fleet wishes to
fix the current market value of this portfolio security until some point in
the future. Assume the portfolio security has a market value of 100, and
Fleet believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.
In that case, the five point loss in the market value of the portfolio
security would be offset by the five point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the
imperfect correlation between cash and futures prices mentioned below.
Fleet could be wrong in its forecast of interest rates, and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE. A Fund would engage in an interest
rate futures contract purchase when it is not fully invested in long-term
bonds but wishes to defer for a time the purchase of long-term bonds in light
of the availability of advantageous interim investments,
B-2
<PAGE>
e.g., shorter term securities whose yields are greater than those available
on long-term bonds. A Fund's basic motivation would be to maintain for a time
the income advantage from investing in the short-term securities; the Fund
would be endeavoring at the same time to eliminate the effect of all or part
of an expected increase in market price of the long-term bonds that the Fund
may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. Fleet wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and Fleet believes that, because of
an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the Fund would assign a pool of investments in
short-term securities that are either maturing in four months or earmarked
for sale in four months, for purchase of the long-term bond at an assumed
market price of 100. Assume these short-term securities are yielding 15%. If
the market price of the long-term bond does indeed rise from 100 to 105, the
equivalent futures market price for Treasury bonds might also rise from 98 to
103. In that case, the 5 point increase in the price that the Fund pays for
the long-term bond would be offset by the 5 point gain realized by closing
out the futures contract purchase.
Fleet could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market
price could fall below 98. If short-term rates at the same time fall to 10%
or below, it is possible that the Fund would continue with its purchase
program for long-term bonds. The market price of available long-term bonds
would have decreased. The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
bond, would remain higher than yields on long-term bonds. The benefit of this
continued incremental income will be reduced by the loss realized on closing
out the futures contract purchase. In each transaction, expenses would also
be incurred.
II. MUNICIPAL BOND INDEX FUTURES CONTRACTS
A municipal bond index assigns relative values to the bonds included in
the index and the index fluctuates with changes in the market values of the
bonds so included. The Chicago Board of Trade has designed a futures contract
based on the Bond Buyer Municipal Bond Index. This Index is composed of 40
term revenue and general obligation bonds, and its composition is updated
regularly as new bonds meeting the criteria of the Index are issued and
existing bonds mature. The Index is intended to provide an accurate indicator
of trends and changes in the municipal bond market. Each bond in the Index is
independently priced by six dealer-to-dealer municipal bond brokers daily.
The 40 prices then are averaged and multiplied by a coefficient.
B-3
<PAGE>
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 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.
B-4
<PAGE>
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<CAPTION>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However,
the Municipal Bond Index also has fallen, and its value stands at 83-27.
Suppose now the portfolio manager closes out his or her futures position by
buying back 50 municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
CASH MARKET FUTURES MARKET
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
Bonds 83-27
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
The numbers reflected in this appendix do not take into account the
effect of brokerage fees or taxes.
III. MARGIN PAYMENTS
Unlike purchases or sales of portfolio securities, no price is paid or
received by a Fund upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with the broker or in a
segregated account with Galaxy's custodian an amount of cash or cash
equivalents, known as initial margin, based on the value of the contract. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination
of the futures contract assuming all contractual obligations have been
satisfied. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying
B-5
<PAGE>
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.
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.
B-6
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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 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.
B-7
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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
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